Macy's Rejects $5.8B Arkhouse Privatization Bid Over Financing and Valuation Concerns

American department store chain Macy's, Inc. rejected on Sunday a $5.8 billion privatization proposal from Arkhouse Management and Brigade Capital Management, expressing concerns about deal financing and valuation.

The rejection comes after the Macy's Board of Directors found the non-binding proposal lacking in compelling value. Ongoing concerns were expressed about the feasibility and financing plan presented by Arkhouse, a real estate-focused investing firm, and Brigade, a global asset manager.

Arkhouse Management Proposes $21/Share for Macy's Acquisition

(Photo : Getty Images/Scott Olson)
CHICAGO - FEBRUARY 02: Customers leave a Macy's store along the Magnificent Mile February 2, 2009 in Chicago, Illinois. Today Macy's Inc. announced that it will cut nearly 4 percent of its workforce, 7,000 jobs, and cut owners dividends by 8.25 cents to 5 cents.

Earlier, Arkhouse has formally confirmed an proposal to acquire the outstanding shares of Macy's, Inc. at $21 per share. The offer specifically targets the shares that Arkhouse does not currently own, marking a noteworthy step in the potential acquisition of Macy's.

This offer represents a 32.4% premium to the unaffected stock price and a 56.8% premium to the Company's 30-day volume-weighted adjusted stock price as of November 30, 2023.

Emphasizing their belief in the long-term success of Macy's as a private entity, Arkhouse Management urges the company to respond promptly and engage in substantive discussions. The investor group expresses willingness to increase the proposal with access to due diligence and has offered to sign a mutual non-disclosure agreement.

"We have conviction in the long-term success of Macy's but believe that its potential will only be realized as a private company," Arkhouse Managing Partners Gavriel Kahane and Jonathon Blackwell said in a press release. "We believe Macy's investors support a privatization given the stock's largest single-day gain in more than two years following media reports of our interest in acquiring the Company."

Macy's Rejects Arkhouse and Brigade's Proposal in Formal Letter

Macy's has officially acknowledged the receipt of an "unsolicited", "non-binding proposal" from Arkhouse and Brigade. However, the company's Board of Directors has deemed the non-binding proposal insufficient to warrant entering into a non-disclosure agreement or sharing due diligence information with Arkhouse and Brigade.

In a letter dated January 21, 2024, addressed to Kahane, Blackwell, and Matthew Perkal, a partner at Brigade, Macy's Chairman and CEO Jeff Gennette communicated the Board's decision to reject the non-binding acquisition proposal submitted on December 1, 2023.

The rejection is based on serious reservations about Arkhouse and Brigade's ability to finance the proposed deal. The Board, consulting with legal, financial, and real estate advisors, highlighted concerns about the uncommitted nature of the financing plan, non-standard preconditions, and the proposed cash equity contribution being below market levels.

Additionally, the Board expressed skepticism about the viability of the financing structure, citing excessive leverage and reliance on payment-in-kind securities.

Despite the lack of compelling value and unaddressed concerns since a previous communication on December 14, 2023, Macy's Board decided against entering a non-disclosure agreement or providing due diligence information.

The rejection aims to avoid distracting the management team from executing the business strategy and value creation for shareholders. According to the letter, Macy's remains open to opportunities that align with the best interests of the company and its shareholders.

Last week, Macy's revealed plans to lay off approximately 2,350 employees and shut down five stores as part of its response to challenges in the retail sector.

The move, impacting 3.5% or 2,350 positions of its total workforce and 13% of corporate staff, is driven by a strategic shift towards increased automation in the supply chain and streamlining decision-making by reducing management layers, as indicated in a leaked internal memo, according to Daily Mail.

This is amidst Macy's workers advocating for boycotts and strikes, with over 20,000 customers committing to shop elsewhere during the strike.

The ongoing protest is set to expand until a fair contract is achieved. As reported by the Bellingham Herald, worker unions from Macy's in Lynnwood, Alderwood, Bellevue, and Vancouver across Washington state are actively planning strikes and calling for a boycott.