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Macy's rejects $5.8 billion privatization offer

AInvestMonday, Jan 22, 2024 11:18 am ET
2min read

Macy's, Inc. (NYSE: M) received an unsolicited proposal to be acquired by Arkhouse Management Co. and Brigade Capital Management back in December. Macy's board of directors, after careful consideration, has rejected the offer, stating concerns about the financing plan and a lack of compelling value. This article aims to analyze the growth potential and investment value of Macy's, shedding light on the key themes impacting the stock and characterizing the debate between bulls and bears. 

The Rejection and Concerns 

Macy's confirmed that it had received an unsolicited, non-binding proposal from Arkhouse and Brigade to acquire all outstanding shares for $21.00 per share in cash. However, Macy's board determined that the proposal did not constitute a basis for further discussions. 

The board of directors conducted a careful review of the proposal in consultation with independent legal, financial, and real estate advisors. The Board concluded that the proposal did not constitute a basis to enter into a non-disclosure agreement or provide any due diligence information to Arkhouse and Brigade. 

The board's decision was primarily influenced by concerns over the financing plan and the lack of compelling financing value in the proposal. The board's concerns were focused on the uncommitted nature of the proposed financing plan, the proposed cash equity contribution of only 25% of the required capital, and the seemingly high reliance on payment-in-kind securities, which raised doubts about the feasibility of the proposed financing structure. 

The board also noted that the equity contribution was below market levels for similar transactions, leading to an excessive level of leverage that may not be sustainable for a company in the retail sector. 

Arkhouse's Stance 

In response to Macy's rejection, Arkhouse expressed its belief that there is a potential for a meaningful increase in their original proposal if granted access to necessary due diligence. They cited the surge in Macy's shares following the initial proposal and suggested that Macy's investors support privatization. 

Macy's Struggles and Strategic Efforts 

Macy's has faced significant challenges in recent years, as the traditional retail landscape experiences disruption from online shopping. The company has attempted various strategies, including introducing new brands and downsizing stores, to revitalize its business. However, these efforts have not translated into a significant transformation or a positive long-term trajectory. 

Macy's stock price has experienced a considerable decline since its peak in 2015, dropping by 75%. 

The company has closed almost one-third of its stores, leaving approximately 700 locations across its brands. The recent announcement of layoffs and store closures further highlights the ongoing struggles faced by Macy's. 

Market Reaction 

The news of the rejected offer and the uncertainty surrounding Macy's future had an impact on the stock price. Macy's shares have fallenl approximately 12% in the past month, although they saw a modest rebound of 2% in premarket trading.

The market seems to be reacting cautiously as investors assess the implications of the rejection and Macy's ability to navigate its challenges. 

Conclusion 

Macy's rejection of the $5.8 billion privatization offer from Arkhouse and Brigade reflects concerns about the financing plan and a perceived lack of compelling value. The Macy's takeover proposal rejection highlights the challenges facing the retail giant and raises questions about its growth potential and investment value. Investors should closely monitor the company's efforts to adapt to the changing retail landscape and assess the potential for digital growth, as well as the impact of continued store closures and potential acquisitions or partnerships. While the debate between bulls and bears continues, a clear direction for Macy's remains uncertain. Regardless of the outcome, Macy's and its investors should remain focused on the long-term strategy of driving value for shareholders and executing value creation levers.

Disclaimer: The above article is for informational purposes only and should not be considered as financial advice. Investing in stocks involves risks, and readers are encouraged to conduct their own research and consult with a financial advisor.


Disclaimer: the above is a summary showing certain market information. AInvest is not responsible for any data errors, omissions or other information that may be displayed incorrectly as the data is derived from a third party source. Communications displaying market prices, data and other information available in this post are meant for informational purposes only and are not intended as an offer or solicitation for the purchase or sale of any security. Please do your own research when investing. All investments involve risk and the past performance of a security, or financial product does not guarantee future results or returns. Keep in mind that while diversification may help spread risk, it does not assure a profit, or protect against loss in a down market.