What: Macy’s Inc. reportedly received a USD 5.8 billion buyout offer, at USD 21 a share, by an investor group including Arkhouse and Brigade Capital Management.

Why it is important: If Macy’s were to accept the bid, it could face the challenge of balancing short- and long-term goals and objectives under new ownership, and its strategies might undergo shifts in alignment with the new owner's vision for the company.

This offer, viewed as low and offering a modest premium, has sparked a 19.4% spike in Macy's stock price, which closed at USD 20.77. The company's future value seems promising, with improved inventory control and the potential for a soft landing of the economy in 2024. The bid represents a 20.8% premium over Macy's market capitalization. The bid is about 5.4 times EBITDA, which represents a historically lower valuation.

The timing is less than ideal for Macy's, as it grapples with a low stock price, ongoing management transition, and soft business performance. The pending transition in leadership, with Tony Spring set to take over as CEO, adds complexity to the situation. An extended bidding war could lead to significant business disruption, posing a vulnerability for Macy’s.

Despite being labelled "a steal" by one source, it's unlikely that Macy's board would accept the reported offer at USD 21.A new owner could decide to break up the group by selling off pieces of the business, such as Bloomingdale’s or Bluemercury, to more than recoup what was paid for the whole company. Macy’s substantial real estate assets, valued between USD 7.5 billion and USD 11.6 billion, also adds to the complexity of the situation.

The advantage of going private is the higher profitability as expenses such as dividends and board member salaries could be cut.

Macy’s reportedly receives USD 5.8B buyout offer from Arkhouse, Brigade