Macy’s Ends Takeover Talks With Arkhouse, Brigade

Macy’s Inc. has ended discussions with Arkhouse Management Co. and Brigade Capital Management, the two activist investors that have been bidding to take over the retailer for the past seven months.

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On Monday, the Macy’s board said discussions with Arkhouse and Brigade “failed to lead to an actionable proposal with certainty of financing at a compelling value.”

The news sent the retailer’s shares down almost 12 percent to $16.85.

The board also said it can now return “its full focus” to enhancing shareholder value through its Bold New Chapter strategy, which centers on closing 150 department stores, investing in 350 go-forward department stores and further expanding small-format store chains, which are Bloomie’s, the specialized and downsized Macy’s units, Bloomingdale’s outlets and Backstage off-price units. The strategy also calls for accelerating luxury growth, monetizing $600 million to $750 million of assets through 2026 mostly through selling off stores, outparcels such as parking lots, as well as some logistic centers, improving inventory planning and allocation, creating a scalable technology platform, and beginning in 2025, low-single-digit annual comparable owned and licensed marketplace sales growth, and annual adjusted EBITDA dollar growth in the midsingle-digit range.

Arkhouse and Brigade first showed interest in purchasing Macy’s in December 2023, with a $21 a share bid. They subsequently raised the bid to $24, and earlier this month again raised its offer to $24.80, valuing the retailer at about $6.9 billion. It’s unclear what further steps, if any, they would take to continue their pursuit of Macy’s.

As part of its announcement Monday, Macy’s issued a timeline tracing its dealings with Arkhouse and Brigade, which suggests a thorough review of what the activists were proposing and access to a great deal of information on Macy’s through a due diligence process.

The timeline indicates:

• In March, Macy’s entered into a confidentiality agreement with Arkhouse and Brigade to facilitate a due diligence process, given they had increased their proposal to $24 a share, valuing the retailer at $6.6 billion, from the initial $21 bid. “Arkhouse and Brigade indicated a willingness to increase this price further upon access to customary diligence, potentially to an amount that the board could consider compelling,” Macy’s indicated.
• Macy’s officials spent “hundreds of hours addressing Arkhouse and Brigade’s extensive diligence requests, facilitating meetings with multiple members of the company’s senior management as well as its financial and real estate advisers and providing thousands of documents with a level of detail that went well beyond what is customarily required to obtain financing for a public company acquisition, such as providing complete store-by-store P&L’s and full-form leases for each Macy’s, Bloomingdale’s and Bluemercury location.”
• Macy’s permitted Arkhouse and Brigade to contact and share confidential information with more than a dozen credible financing sources.
• In May, Arkhouse and Brigade agreed to a timetable to deliver “a fully financed and actionable proposal” and that, by June 25, they would provide “the best purchase price per share they were prepared to pay, and fully negotiated commitment papers for all the debt and equity needed to finance the revised proposal.” Instead, on June 26, Arkhouse and Brigade only submitted a “check in” letter of interest in acquiring all of the outstanding shares of the company for $24.80 a share in cash, which was within the range the Macy’s board previously told Arkhouse and Brigade was not compelling. Macy’s said the financing papers that accompanied the “check in” letter were insufficient for a viable offer.

“The board believes that continuing diligence is not warranted or in the best interests of shareholders given the significant uncertainty that Arkhouse and Brigade’s financing could or would ultimately be completed given the substantial conditionality in their financing papers; the less than compelling value proposed, and the significant distraction for the management team at a critical point in the execution of the company’s strategy,” Macy’s stated Monday.

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“As the board has consistently demonstrated throughout this process, we are open-minded to exploring all paths to enhancing shareholder value.”

Tony Spring, chairman and chief executive officer of Macy’s Inc., in a statement said, “Our team continues to be singularly focused on creating value for our shareholders. While it remains early days, we are pleased that our initiatives have gained traction, reinforcing our belief that the company can return to sustainable, profitable growth, accelerate free cash flow generation and unlock shareholder value.”

Spring also said Macy’s Bold New Chapter strategy is gaining traction across all three of its strategic pillars — strengthening the Macy’s nameplate, and simplifying and modernizing end-to-end operations.

The company plans to share additional details on progress with its Bold New Chapter strategy as part of its second-quarter 2024 earnings report next month.

“The news that Macy’s is terminating talks with Arkhouse and Brigade is to be welcomed,” Neil Saunders, managing director of GlobalData, said in a statement. “Other than seeking to monetize Macy’s real estate assets for short-term gain, neither party brought any long-term value to the table. Indeed, many of the activist investor proposals would have significantly weakened Macy’s and hampered its ability to survive as a retail operation. Macy’s has played a good game in patiently furnishing the activist investors with information and allowing their nominees to take some seats on the board. As such, it has shown itself to be a willing participant in discussions and has taken the bid seriously, which it must do in the interests of shareholders. However, Macy’s is also right to terminate dealings that were not proving to be fruitful or serious in terms of financing.”

Macy’s Inc. has Bank of America Securities and Wells Fargo Securities acting as financial advisers and Wachtell, Lipton, Rosen & Katz is acting as legal adviser.

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