Macy’s Board Rejects Unsolicited Bid from Arkhouse and Brigade, Citing Financing Issues
Department store giant Macy’s made headlines on January 22nd by rejecting an unsolicited $5.8 billion takeover bid from private equity firms Arkhouse Management and Brigade Capital Management. The retailer’s board of directors unanimously declined the offer, stating concerns over the buyers’ ability to finance the acquisition and extract value from the company.
Background Leading Up to Bid
Macy’s has faced declining sales and profits over the past several years amidst falling foot traffic at malls and the rise of e-commerce giants like Amazon. The company has closed numerous stores and laid off thousands of workers in cost-cutting efforts.
Activist investment firms Arkhouse and Brigade have acquired stakes in Macy’s over the past year, believing the company’s real estate holdings and e-commerce operations are undervalued. They have pushed for Macy’s to split its online and physical store businesses into separate companies.
On January 21st, Arkhouse and Brigade sent a proposal to take Macy’s private for $7 billion including debt, valuing the equity at $5.8 billion. The non-binding offer represented a 63% premium over Macy’s average share price the week prior.
Key Details of Takeover Bid and Rejection
| Bid Details | |
|---|---|
| Bidder | Arkhouse Management, Brigade Capital Management (activist investors) |
| Offer Price | $7 billion total ($5.8 billion equity value) |
| Premium to Market Value | 63% |
| Intention | Take Macy’s private to restructure business |
| Financing | Uncommitted debt financing |
| Rejection Rationale | |
|---|---|
| Concerns Over Financing | Board not confident in obtaining financing |
| Insufficient Value | Bid undervalues future potential of e-commerce & real estate |
| Prefers Self-Help Plan | Cutting costs, jobs deemed better path to value |
Macy’s Pushes Forward With Internal Improvements
The Macy’s board claimed the offer significantly undervalued the future potential of both its bricks-and-mortar real estate as well as its digital commerce operations.
Instead of selling, Macy’s intends to improve the business on its own through additional cost cuts. Just two days before rejecting the bid, Macy’s had announced plans to eliminate 2,000 corporate jobs and close three more stores. This builds on a multi-year effort to close underperforming locations and optimize operations.
CEO Jeff Gennette stated: “The board is focused on leveraging the strength of our entire business to drive value for all shareholders. We are relentlessly focused on growing digital sales, expanding high-margin private labels, accelerating digital transformation…and monetizing our vast real estate holdings.”
Behind the Scenes: Pressure Mounting on Both Sides
According to sources close to the discussions, tensions have been building between Macy’s leadership and the activist investment firms. While Arkhouse and Brigade have agitated for bolder changes, Gennette and the board have preferred a more moderate approach focused on tweaking the existing business.
On the other side, Arkhouse and Brigade have become increasingly frustrated with the lack of action to unlock what they see as tremendous hidden value in Macy’s assets. Taking the retailer private would allow them freedom to aggressively reshape operations outside the scrutiny of public shareholders.
With the bid now rejected, analysts widely expect the activist firms to continue pressuring Macy’s. Arkhouse Managing Partner Will Brown released a statement saying they “remain committed to trying to work constructively with Macy’s leadership and the Board to complete a transaction.”
What’s Next in this Retail Drama?
Now that their initial offer was declined, Arkhouse and Brigade have a few options to continue their pursuit of Macy’s:
Increase Offer Price
They could raise their bid to be more compelling for shareholders and the board. However, this risks overpaying unless they have identified cost savings the market is unaware of. Given their background investing in distressed firms, Arkhouse and Brigade may see turnaround potential others don’t.
Take Offer “Over the Board’s Head”
Another approach would be trying to garner shareholder support for their bid despite the board’s disapproval. If they acquire over 50% of shares, Arkhouse and Brigade could theoretically complete their proposed take-private without cooperation from leadership. However, this “hostile takeover” approach would likely lead to a messy legal battle.
Seek Board Representation
The activist firms could also seek to gain seats on Macy’s board of directors themselves. This would give them influence to push for changes from within, but still require convincing other members.
Walk Away
If Arkhouse and Brigade decide the situation is futile or no longer worth the effort, they may simply sell their stakes in Macy’s and move on to other investments. This seems unlikely given their vocal demands for drastic action thus far.
The table below summarizes the next likely steps by both sides:
| Arkhouse / Brigade | Macy’s Leadership |
|---|---|
| Increase offer price | Remain opposed to sale |
| Take hostile “anyway” bid to shareholders | Challenge legally if necessary |
| Seek board representation | Argue against board seats |
| Pressure for business split | Accelerate cost cuts, closures |
| Sell stake and move on (unlikely) | Wait out investor pressure |
While the board currently retains control, shareholder opinion may end up being the deciding factor if Arkhouse and Brigade continue their campaign. Institutional and activist investors owning over 75% of shares have yet to publicly comment on the rejected bid. Stay tuned for the next episode in this ongoing retail drama!
To err is human, but AI does it too. Whilst factual data is used in the production of these articles, the content is written entirely by AI. Double check any facts you intend to rely on with another source.
