Macy’s (NYSE:M) witnessed a significant 16% surge in its shares on Monday following the announcement that investors Arkhouse Management and Brigade Capital had enhanced their bid to take the U.S. department store operator private. The revised bid now values Macy’s at $6.58 billion.
The new offer price stands at $24 per share, up from the initial $21, representing a substantial 38% premium over Macy’s closing price on Dec. 8, when talks of the deal first surfaced. Despite the retailer’s shares hovering slightly below $21 on Monday, they reached their highest level since Dec. 11, indicating a potential turnaround in their year-long performance.
While Macy’s is yet to grant access to its financial records to the bidders, the company is reviewing the revised offer. This comes after Macy’s rejected a prior bid from Arkhouse in January, citing concerns regarding deal financing and valuation. Arkhouse has indicated its ability to secure financing from global lenders and has hinted at the possibility of an even higher bid, which could prompt Macy’s board to reconsider the offer more seriously, according to Citi analyst Paul Lejuez.
With its sales growth and profitability challenged by competition from both physical and e-commerce rivals offering cheaper alternatives, as well as changing consumer shopping patterns influenced by heightened inflation, Macy’s is facing significant headwinds. Morningstar Research analyst David Swartz suggests that Macy’s should consider cooperating with the investment group to explore a potential sale, warning of the risk of a hostile takeover if it refuses to do so.
Arkhouse, along with its affiliates holding a 4.4% stake in Macy’s, has increased pressure on the company by nominating nine director candidates with expertise in retail, real estate, and capital markets to the company’s 14-member board.
In response to its declining performance, Macy’s unveiled a turnaround plan last week, which includes reducing store counts and job roles while focusing on revitalizing sales at its luxury brands Bloomingdale’s and Bluemercury through improved merchandise and enhanced staffing.
Despite these challenges, Macy’s forward price-to-earnings multiple, a key valuation metric, remains lower at 6.73 compared to industry peers like Kohl’s (NYSE:KSS) and Nordstrom (NYSE:JWN), which boast P/E ratios of 10.36 and 10.28, respectively.
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