Retailer Macy's said it will review an increased buyout offer from a dissident investor group that jacked up its unsolicited bid for the chain by nearly $1 billion, to $6.6 billion in cash.
New York-based Macy's — parent of its namesake department stores as well as Bloomingdale's and Bluemercury — confirmed it received the revised offer from Arkhouse Management and Brigade Capital Management, both based in New York. Macy's rejected the activist group's first bid on Dec. 1 that totaled $5.8 billion.
Arkhouse and Brigade have now upped the ante, offering Macy's $24 a share instead of the $21 they offered last year. That's 33.3% more than where the retailer's stock closed Friday and 14.3% more than the previous offer from Arkhouse and Brigade for the outstanding Macy's shares they don't own. As of midday Monday, the retailer's shares were trading at $20.80.
Even with the higher bid, the activist shareholders still fall at the low range of estimates for the value of Macy's real estate holdings by various analysts, which range from $5 billion to $14 billion.
In a statement, Arkhouse and Brigade said they weren't satisfied with the strategy that Macy's new CEO, Tony Spring, unveiled last week, but that the retailer's quarterly results did give them confidence to increase their offer. Spring's plan calls for Macy's to shut 150 of its namesake stores, including a flagship in San Francisco, and to sell enough real estate to generate $600 million to $750 million in proceeds and invest more to expand its luxury chains.
In January, Macy's said it was closing five stores that are leftovers of closings originally planned for last year. Arkhouse is a real estate-focused investment firm, leading analysts to expect it would look to sell off parts of Macy's portfolio if it succeeds in taking Macy's private.
"While the restructuring plan Macy’s unveiled last week failed to inspire investors, the fourth-quarter earnings and year-end results have given us further confidence in the long-term prospects of the company if redirected as a private company," Arkhouse Managing Partners Gavriel Kahane and Jonathon Blackwell said in a joint statement. "After coordinating with our financing sources, we have increased our offer to $24 per share in cash. We remain open to increasing the purchase price further subject to the customary due diligence."
New Partners
In rejecting the prior offer, Macy's said Arkhouse and Brigade hadn't demonstrated they had adequate financing to proceed with a takeover. But on Sunday, the two firms identified Fortress Investment Group and One Investment Management as additional equity capital partners in the proposed Macy's transaction.
"The notion that the plan we are proposing is not actionable is simply not true," Kahane and Blackwell said. "We have tried repeatedly to address the concerns raised by the company. We clarified the 50% equity contribution we laid out three months ago and disclosed our partnership with two highly regarded investors — Fortress and [One Investment]. With the help of our advisers, we have identified large global institutional financing sources for each debt component of the transaction with strong interest in finalizing commitments during a customary diligence process."
Arkhouse is mounting a proxy fight, nominating nine candidates for Macy's board for its May 17 shareholder meeting.
Macy’s said its board will review and evaluate the latest proposal in consultation with its financial and legal advisers and that it won't have any additional comment until that review is completed.
The retailer "conspicuously" didn't commit to engage with the dissident investors or to grant their request for due diligence information, David Swartz, an analyst for Morningstar, said in a note Monday.
"Over the past several weeks, Macy’s board has argued that the original offer was too low and that the financing was uncertain," Swartz said. "Now that the investment group has raised its bid by 14% and announced additional equity partners, these concerns seem unjustified. We think Macy’s should cooperate with the investment group and pursue a possible sale. If it refuses to do so, it runs the risk of a hostile takeover."
Swartz added that "while we agreed with Macy’s board that the original offer was low, the new offer is close to our $25 fair value estimate, which we are not changing. Ultimately, we think it is a disservice to shareholders for Macy’s to push away potential buyers."
For the Record
Jefferies is serving as financial adviser and Paul, Weiss, Rifkind, Wharton & Garrison is serving as transaction counsel to the bidding group. Cadwalader, Wickersham & Taft is serving as legal counsel and Longacre Square Partners is serving as strategic adviser to Arkhouse. Morrow Sodali is serving as proxy adviser. Bank of America Securities and Wells Fargo are acting as financial advisers and Wachtell, Lipton, Rosen & Katz is acting as legal adviser to Macy's.