Macy's Buyout? Private ownership bid

[HCal]

https://www.axios.com/2024/01/22/macys- ... d-rejected

Good for them trying to avoid the private equity trap that has doomed many iconic retailers over the years, speaking of which it's hard to believe that Mervyn's has been gone roughly 15 years now.

Good for them, but shareholders are going to be upset. It's difficult to justify rejecting a buyout offer at a 20% premium. If they don't come up with an alternative plan very quickly, and Arkhouse wants to pursue it, they are going to be facing a hostile takeover situation that will be very difficult to get out of.

[ClownLoach]

https://www.axios.com/2024/01/22/macys- ... d-rejected

Good for them trying to avoid the private equity trap that has doomed many iconic retailers over the years, speaking of which it's hard to believe that Mervyn's has been gone roughly 15 years now.

Good for them, but shareholders are going to be upset. It's difficult to justify rejecting a buyout offer at a 20% premium. If they don't come up with an alternative plan very quickly, and Arkhouse wants to pursue it, they are going to be facing a hostile takeover situation that will be very difficult to get out of.

It has been well known to investors that the Herald Square location is worth more than the entire collective company. They didn't force a sale when things were far worse. And I'm betting a 20% premium is less than the value of the current business which has achieved profitable status in 99% of stores plus the real estate of just Herald Square alone.

Taking 20% over and letting the going out of business banners go up instantaneously sells the investors short. And the harder they push a deal the higher the stock will go, until it becomes an offer at a discount instead of a premium.

Obviously there is something somewhere between the business and the investor base that has prevented this outcome even when the disparity between Herald Square and the company was worse. Remember that we do not know who the shareholders all are... I'm willing to bet that a lot of their shares are held by mall owners and operators who would be looking to vote against any deal that dooms the chain and in turn dooms their property values. In other words it is probably like a publicly traded, privately held company already. Why else would they be so dependent on seeing all the books - these firms admit they don't have committed funding until that happens. As soon as they see who owns all the stock my guess is they pull the offer.

[HCal]

It has been well known to investors that the Herald Square location is worth more than the entire collective company. They didn't force a sale when things were far worse. And I'm betting a 20% premium is less than the value of the current business which has achieved profitable status in 99% of stores plus the real estate of just Herald Square alone.

The "value of the current business" is whatever is shown by the stock price. You are referring to the value of the future business, which is entirely hypothetical.

Taking 20% over and letting the going out of business banners go up instantaneously sells the investors short. And the harder they push a deal the higher the stock will go, until it becomes an offer at a discount instead of a premium.

If the stock goes higher, that indicates that the market thinks a deal is likely. But the stock will never go higher than the amount of the offer.

Ultimately, it all will come down to time frame. Some investors want a quick buck, others (perhaps mall owners like you mention) are thinking more long-term. Which side wins out will depend on a lot of factors. By rejecting this offer, Macy's management is indicating that the long-term investors are in control for now, but that can easily change very quickly. Perhaps they just rejected it in hopes for a higher offer, from the same people or someone else.

[ClownLoach]

It has been well known to investors that the Herald Square location is worth more than the entire collective company. They didn't force a sale when things were far worse. And I'm betting a 20% premium is less than the value of the current business which has achieved profitable status in 99% of stores plus the real estate of just Herald Square alone.

The "value of the current business" is whatever is shown by the stock price. You are referring to the value of the future business, which is entirely hypothetical.

Taking 20% over and letting the going out of business banners go up instantaneously sells the investors short. And the harder they push a deal the higher the stock will go, until it becomes an offer at a discount instead of a premium.

If the stock goes higher, that indicates that the market thinks a deal is likely. But the stock will never go higher than the amount of the offer.

Ultimately, it all will come down to time frame. Some investors want a quick buck, others (perhaps mall owners like you mention) are thinking more long-term. Which side wins out will depend on a lot of factors. By rejecting this offer, Macy's management is indicating that the long-term investors are in control for now, but that can easily change very quickly. Perhaps they just rejected it in hopes for a higher offer, from the same people or someone else.

There has been a line of vultures waiting for the opportunity to liquidate this chain for decades. It hasn't happened under much worse circumstances. Why would it happen now? There is something that has prevented this outcome for years. And nothing stops the stock from going over the value of an offer. Lived through that myself when private equity vultures were trying to buy my company at a obscene discount.

[ClownLoach]

It has been well known to investors that the Herald Square location is worth more than the entire collective company. They didn't force a sale when things were far worse. And I'm betting a 20% premium is less than the value of the current business which has achieved profitable status in 99% of stores plus the real estate of just Herald Square alone.

The "value of the current business" is whatever is shown by the stock price. You are referring to the value of the future business, which is entirely hypothetical.

Taking 20% over and letting the going out of business banners go up instantaneously sells the investors short. And the harder they push a deal the higher the stock will go, until it becomes an offer at a discount instead of a premium.

If the stock goes higher, that indicates that the market thinks a deal is likely. But the stock will never go higher than the amount of the offer.

Ultimately, it all will come down to time frame. Some investors want a quick buck, others (perhaps mall owners like you mention) are thinking more long-term. Which side wins out will depend on a lot of factors. By rejecting this offer, Macy's management is indicating that the long-term investors are in control for now, but that can easily change very quickly. Perhaps they just rejected it in hopes for a higher offer, from the same people or someone else.

There has been a line of vultures waiting for the opportunity to liquidate this chain for decades. It hasn't happened under much worse circumstances. Why would it happen now? There is something that has prevented this outcome for years. And nothing stops the stock from going over the value of an offer. Lived through that myself when private equity vultures were trying to buy my company at a obscene discount.

CNBC reported that Macy's has officially rejected this bid, but states that they're always listening for business proposals. Translation: they are not going to accept being sold off to glorified liquidators who will strip the assets and dispose of the rest of the enterprise. But they're willing to listen to buyers who intend to keep the business intact as a going concern.

This speaks for itself, obviously they know that they have the support of enough large institutional shareholders who have a vested interest in seeing the company remain a going concern. If we were dealing with ordinary investors, bankers, etc. then they would be marching in front of headquarters demanding the sale to these corporate raiders be conducted immediately.

There must be a large investment from companies that own sizeable stakes of major mall operators like General Growth Properties and Simon... Those companies need Macy's to survive in order to protect themselves from being forced into bankruptcy. Like it or not, Macy's has become the cornerstone of whatever is left of the American shopping mall business. The loss of Macy's would be catastrophic to these companies.

[storewanderer]

Macy's is very important to malls nationwide however in some regions Dillard's is equally important. But given that Dillard's owns most of its real estate maybe the situation is somewhat different.

Dillards with a $6.45 billion market cap for what 300 stores, higher than that of Macys... talk about a bloated stock... that is Dillards. Dillards is a good solid and stable company but it isn't worth that market cap. I can see why groups are targeting Macys. It looks "undervalued."

[veteran+]

Dillards does not have the cache of Macy's, not even close. This, despite Macy's being kind of messed up.

[ClownLoach]

Dillards does not have the cache of Macy's, not even close. This, despite Macy's being kind of messed up.

Doesn't debt factor into this? I thought Dillard was debt free? That would explain the discrepancy.

Dillard's does not seem to draw a lot of traffic, but they have a considerable amount of customers who shop with their credit cards. They are also a full commission model which reduces labor costs as the sales people help set displays, stock the racks and shelves, and clean the store. This is why their stores typically are perfectly clean and recovered, even though they might look a bit dated.

California retailers operating on full commission run into problems, which was one of the reasons for the infamous conversion to hourly at Circuit City who had more stores in California than any other state. The commissioned employees were responsible for substantial work that was effectively unpaid (stocking shelves, cleaning the store, setting planograms and displays). Concept was that they had to do this work to be able to sell merchandise and earn their commissions. The only work that wasn't done by commissioned employees was the actual unloading of trucks, warehouse stocking, and loading into cars. Everything else used to be fine until California labor board began investigating Circuit City with this kind of operation and questioned if they were really making employees effectively work off the clock; as you know when one company falls under the microscope everyone else reacts swiftly. This might also be why Dillards stopped expanding into California, as the state investigating Circuit City's commissioned employees work in retail happened a few years after they opened in Antelope Valley Mall. I haven't shopped that location but I'll bet they run a different staffing model in California as a result. Most full commission models today are only in smaller formats with minimal side work, like cell phone stores, or car dealers. Pretty much everything else became hourly with some commission incentives which ultimately is a more expensive model

Back to the topic at hand, Dillard's is such a regional player that they would likely experience little to no success expanding without costly advertising campaigns. A Dillard's opening in Seattle for example would be no more successful than a Boscov's or Belk or really any other regional player; very few customers would know who they are and the cost of acquisition per customer would be substantial.

[HCal]

CNBC reported that Macy's has officially rejected this bid, but states that they're always listening for business proposals. Translation: they are not going to accept being sold off to glorified liquidators who will strip the assets and dispose of the rest of the enterprise. But they're willing to listen to buyers who intend to keep the business intact as a going concern.

Alternative translation: the offer is too low and they are rejecting it because they want more money.

[storewanderer]

Dillards does not have the cache of Macy's, not even close. This, despite Macy's being kind of messed up.

Doesn't debt factor into this? I thought Dillard was debt free? That would explain the discrepancy.

Dillard's does not seem to draw a lot of traffic, but they have a considerable amount of customers who shop with their credit cards. They are also a full commission model which reduces labor costs as the sales people help set displays, stock the racks and shelves, and clean the store. This is why their stores typically are perfectly clean and recovered, even though they might look a bit dated.

California retailers operating on full commission run into problems, which was one of the reasons for the infamous conversion to hourly at Circuit City who had more stores in California than any other state. The commissioned employees were responsible for substantial work that was effectively unpaid (stocking shelves, cleaning the store, setting planograms and displays). Concept was that they had to do this work to be able to sell merchandise and earn their commissions. The only work that wasn't done by commissioned employees was the actual unloading of trucks, warehouse stocking, and loading into cars. Everything else used to be fine until California labor board began investigating Circuit City with this kind of operation and questioned if they were really making employees effectively work off the clock; as you know when one company falls under the microscope everyone else reacts swiftly. This might also be why Dillards stopped expanding into California, as the state investigating Circuit City's commissioned employees work in retail happened a few years after they opened in Antelope Valley Mall. I haven't shopped that location but I'll bet they run a different staffing model in California as a result. Most full commission models today are only in smaller formats with minimal side work, like cell phone stores, or car dealers. Pretty much everything else became hourly with some commission incentives which ultimately is a more expensive model

Back to the topic at hand, Dillard's is such a regional player that they would likely experience little to no success expanding without costly advertising campaigns. A Dillard's opening in Seattle for example would be no more successful than a Boscov's or Belk or really any other regional player; very few customers would know who they are and the cost of acquisition per customer would be substantial.

Dillard's runs on a model that I consider worse than commission. The employee's wage is based on how much they sell. They have a sales goal by day, week, etc. and wage is directly tied to it over time. They may get paid $15/hr today under the assumption they'll average $300 an hour in sales. If they go a few months and only average $250 an hour in sales then they get a pay cut... if they get average sales up again then they'll get their $15 back... It isn't that simple but that is broadly how it works and there are factors for seasonality, clearance sales, etc. but it is a very tough model especially given the low customer counts in the stores. But there are quite a few employees in the Reno Dillards who have worked there since it opened in 2005, also a couple guys in women's shoes (best performing department in the store) who I am pretty sure used to be commissioned appliance salespeople at Sears, so it seems to work for some of these employees.

Dillard's stopped expanding into California because Macy's West was run in a very aggressive manner taking all of the real estate so they couldn't get good sites at the better malls. Macy's let them get nosebleed sites in places like Stockton and El Centro and expected they'd just shut down. Well, they are indeed still open at those sites... Not sure how El Centro does but the Stockton Store actually does very well. Reno Store has had a few ups and downs; I was worried it was going to close around 2016-2017; it has done better the past couple years.