Takeover Fight Looms Over Macy's

Macy’s is putting up its dukes. Arkhouse, a fund management company that launched an unsolicited bid that Macy’s rejected in December, is back. This time, Arkhouse is asking for nine seats on Macy’s board of directors.

Macy’s turned thumbs-down on the latest push, reiterating a promise to focus on creating long-term value for shareholders.

“Macy’s, Inc. has a diverse, experienced and engaged Board who collectively bring expertise in areas relevant to Macy’s business, strategy and guiding the company in creating shareholder value,” the company said in a response statement. The retailer also underscored the objection it made previously, saying it does not believe Arkhouse and Brigade Capital Management, an asset manager who is also part of the offer, have the capacity to pull off the funding for the $5.8 billion buyout bid.



Macy’s said it asked Arkhouse for more financial clarity. And in what is likely to be the latest in a long series of finger-pointing, the department store accuses Arkhouse of failing to provide the additional information, despite Arkhouse’s claims to the contrary.

Not surprisingly, Arkhouse disagrees. “We have persisted in our attempts to resolve any supposed concerns privately with the board,” the company says in a statement. “We provided the board with additional details regarding our financing, including names of our highly regarded equity partners – which have more than $75 billion in combined assets under management – for the 50% equity component of the transaction.”

Arkhouse nominated the nine directors due to Macy’s “history of poor performance and continued refusal to engage constructively with our credible and motivated buyer group.”

Arkhouse also reiterated the possibility that the proposed $21-per-share offer could go higher if it is given the opportunity to perform due-diligence research.

Macy’s disagrees. “Arkhouse and Brigade have yet to provide any financing details that would enhance the actionability of their proposal despite multiple opportunities to do so, and instead of attempting a constructive dialogue, Arkhouse has chosen to launch a proxy contest.”

Macy’s contends it is committed to finding more growth, and promises to unveil more strategic details in next week’s earnings call.

The prospect of a proxy fight has pushed Macy’s stock a bit higher. Arkhouse’s suggestion that it may take the fight directly to shareholders makes the contest more interesting.

“The result of a successful proxy fight would likely be that Arkhouse and Brigade would take Macy’s private,” writes David Swartz, an analyst who follows Macy’s for Morningstar. “The buyout group is probably interested in monetizing Macy’s significant real estate holdings, possibly through one or more sale-leaseback transactions.”

Still, he notes that with a relatively low offer price, less than $2 above the current share price, “winning a contentious proxy battle will be a tall order.”

Despite Macy’s size, with $5 billion in revenue in the most recent quarter, sales have been trending downward for years, as consumers increasingly shop with internet and specialty competitors.

Macy’s and the entire department store category face “intense competitive pressure,” Swartz notes. “Rather than fight—an expensive and distracting proposition—we think the two sides would be better off if they negotiated for a higher bid. It would be a risk to shareholders to turn away any potential buyers.”

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