After six years, the American department store giant Macy's (Macy's) is rumored to have been acquired.
Recently, Macy's received a proposal to privatize. Arkhouse Management, a real estate investment company that is a major shareholder of Macy's, and brigade Capital Management, an asset management company, have proposed to buy Macy's remaining ** at $21 per share.
It's a competitive one. Macy's stock price was just $17 when the privatization plan was proposed, and the investment group said it was willing to raise the tender offer further after due diligence.
The investment group believes that Macy's is currently undervalued. Macy's stock price reached $70 in 2015 and has fallen more than 15% year-to-date.
The lower valuation of Macy's reflects the weakness of the traditional department store industry in recent years. Under the influence of new consumption Xi such as online shopping, the traditional department store industry represented by shopping malls has been affected.
As the largest department store in the United States, Macy's operates about 500 shopping malls under the eponymous brand and has a large number of discount stores and small stores such as Bloomingdale's. But its performance is also unsatisfactory.
According to the data, Macy's revenue in 2021 was $24.7 billion and the profit was $1.4 billionIn 2022, the revenue was $24.4 billion and the profit was $1.2 billion. The revenue in the first three quarters of 2023 was $15.5 billion, down 815%, profit 17.5 billion yuan, down 738%。
However, Macy's said in its latest third-quarter earnings report that although revenue still fell year-on-year in the current period, the profit and inventory situation has improved significantly.
Among them, the profit in the third quarter was 43 million US dollars, although it still fell 60% year-on-year, but it has achieved a turnaround compared with the second quarter, and the commodity inventory decreased by 7%. A number of investment banks that were previously pessimistic said that they had "far better expectations", and their stock prices rose by more than 10% on the day of the announcement of the third quarter.
And with the news going viral last Friday, Macy's stock price has recorded a rise of more than about 20% before the opening of the market on the 11th, and the per share** has exceeded $20. If the investment group were to push for a privatization, the first share of the $21 shares** would have to be raised.
The proposal has been discussed with Macy's and discussed by Macy's board of directors. However, neither side has made any further statements.
Instead, an investment bank offered to provide the investment group with the necessary financing to assist in the completion of the transaction.
The latest news, according to TD Cowen, Macy's (MUS) may be $25 per share. "We believe that a $25 share price may be justified based on long-term growth assumptions, as well as additional due diligence on real estate realisation opportunities," TD Cowen analyst Oliver Chen said in a note. ”
However, it seems that the market is not optimistic about the completion of the acquisition. This is largely based on previous reports on the sale of department store chain Nordstrom (JWNUS) and Kohl Department Store (KSSUS) was unsuccessful.
In 2017, the heirs of Nordstrom's founding family decided to privatize the group, but it was forced to shelve due to financing difficulties. Allegedly, the Nordstrom family could not accept the exorbitant interest rates and harsh terms offered by the lenders, leading to a dead end in the negotiations.
As for Kohl's Department Store, the weak performance also discouraged potential acquirers. In the first quarter of 2022, Goldman Sachs, its financial advisor, approached more than 20 potential buyers, including various financial firms, retail companies, and investors focused on real estate. However, in the same period, the total revenue of Kohl Department Store in Q1 fell by 4 year-on-year4% to 37$1.5 billion, less than the market expectation of 36$900 million;Net sales decreased by 5% year-over-year2%。The data disappointed investors, and the department stores itself refused to buy it.
But we believe that if the financing does come in place and the buyer has extensive experience in the retail sector, the [Macy's] acquisition could be more credible." Oliver Chen said.
As early as six years ago, Macy's was caught in the fate of being acquired.
On February 6, 2017, Hudsons Bay made an offer of interest to Macy's to further penetrate the U.S. market. At that time, Hudson's Bay already owned the Lord & Taylor and SAKS Fifth **Enue chains in the United States.
However, since the total market value of Hudson's Bay was only about $1.5 billion at that time, and the total market value of Macy's was more than $20 billion, it was obvious that Hudson's Bay could not complete the merger on its own. Therefore, Hudson's Bay intends to join forces with Chinese capital to reach this "snake swallowing elephant" deal.
At the same time, Richard Baker, President and Executive Chairman of Hudson's Bay, and Don Watros, President of HBC's acquisitions, were frequently present in Hong Kong to meet with potential Chinese investors.
According to the news at the time, Hong Kong Lifestyle International Group, Chow Tai Fook Group, Hong Kong Private Equity ** Gaw Capital Partners, Hong Kong Fung Retail Group, Fosun Group and Greenland Group are all on the list of negotiations. Among them, the Zheng family and Fosun have the highest voice.
According to Chow Tai Fook Group's 2016 interim results report, its jewellery retail business has spread to more than 2,300 Chow Tai Fook and Hearts on Fire stores in Greater China, Singapore, Malaysia, South Korea and the United States, covering more than 500 cities.
At the same time, Chow Tai Fook also increased its investment in overseas businesses, including the acquisition of Sheraton Grand Mirage Resort on the coast of Australia with Far East Consortium and The Star Entertainment Group Limited.
Fosun, on the other hand, has become one of the investors in Hudson Bay who intends to cooperate because of its strong financial strength. Since 2016, Fosun International has embarked on a wide range of M&A in commercial properties in Japan, Russia, Germany and other countries, and has set up a number of investment platforms, including Japan's IDERA, the UK's real estate investment and asset management platform Resolution Property, and Russia's comprehensive financial platform Fosun Eurasia Capital. In addition, as of the end of 2015, the total assets of Fosun Group's insurance business reached RMB180.6 billion, and the investable assets reached RMB160.4 billion.
It is said that once Hudson's Bay successfully completes the acquisition of Macy's, it may package $20 billion of Macy's real estate resources** into its real estate trust, HBS Global Properties, and grow stronger before IPO. Stabad estimated in 2015 that real estate accounted for about $21 billion of Macy's, a total value of $29 billion.
This also adds more room for reverie to the transaction. In the end, however, the potential deal was abandoned as the Hudson's Bay acquisition target shifted to Niemann Marcus, a U.S. luxury department store group.
According to the news at the time, although Hudson's Bay has spared no effort to promote the implementation of the relevant acquisition, it has not found a major institutional investor as an equity partner. Including shopping mall operator Simon Property Group (SPG.).n) and are also reluctant to support Hudson's Bay's acquisition of Macy's.
Macy's is too "big", which is also one of the core reasons hindering the Hudson's Bay acquisition process. The analysis pointed out that Macy's still had $7.5 billion in debt at that time, and if Hudson Bay insisted on the acquisition, it might become two companies after the acquisition, a business company and a real estate company, and the latter would bear the debt. But such a complex structure makes the acquisition much less likely to succeed.
Mergers and acquisitions of department stores often involve large amounts of real estate, which is difficult in itself, and no transaction can change the trend of declining sales. The analysis said. In addition, since the brands acquired by Hudson's Bay have not seen significant growth in performance, it is difficult to judge that Macy's acquisition will increase its performance, and may even add a burden to itself.
It is reported that in addition to HBC, real estate developers Brookfield Asset Management, Simon Property Group and General Growth Properties were also potential acquirers of Macy's at that time. Among them, Brookfield has partnered with Macy's to redevelop or sell back 50 properties owned by Macy's.
But it is clear that the problems encountered by HBC are also unsolvable for other investors. The related acquisition intentions eventually dissipated in the wind. Macy's could only continue to struggle in the mud alone.
Once the world's largest retail department store, Macy's is now one of many tired department stores.
Prior to Hudson's Bay's offer, Macy's had been closing stores for four years and laying off employees. In the 2016 shopping season alone, same-store sales at Macy's fell by 21% and experienced seven consecutive quarters of declining sales. At the same time, the wave of layoffs of more than 10,000 people and the closure of 63 stores were also the largest in four years. The stock price has also shrunk 50% from its peak in 2015, from $24.2 billion to $11 billion.
This has something to do with the withering of brick-and-mortar retail. With the rise of e-commerce, the traditional department store retail industry has been impacted, and its channel value has continued to decline.
At the time, S&P said that the default rate of the U.S. retail industry in 2017 would exceed that of the 2009 financial crisis. There will be more layoffs in the future, and at that time, the number of layoffs in the US retail industry has exceeded 50,000, and the business of shopping malls is becoming more and more light.
Traditional department store retailers are showing signs of fatigue. Data shows that from 2006 to 2016, Sears' market capitalization shrank from $27.8 billion to $1.1 billion, JC Penny shrank from $18.1 billion to $2.6 billion, and Nordstrom fell from $12.4 billion to $8.3 billion, Kohl'S shrank from $24.2 billion to $8.8 billion. Amazon, on the other hand, has grown from $17.5 billion to $355.9 billion, and it continues to grow.
Macy's tried to turn the tide by reducing real estate costs, investing in e-commerce, and focusing on the top 150 stores with the best performance, but the simple and crude approach did not improve Macy's performance, after all, for a company with nearly 900 large shopping malls and 150,000 employees across the United States, there are many difficulties in turning around quickly.
At the time, the market had hoped that the Hudson's Bay acquisition would awaken Macy's environmental awareness and increase its adaptability to change, but it backfired.
Then, the arrival of the epidemic also put Macy's in trouble again.
Macy's announced the closure of all nearly 800 stores on March 18, 2020, due to the pandemic, which cost Macy's the vast majority of its revenue, and its e-commerce business accounted for less than 1 3 of its total revenue. To minimize operating costs, most of Macy's nearly 130,000 employees began taking unpaid furlough.
Macy's market value has also declined further, with a total market capitalization of only about $1.8 billion in 2020, which directly led to its removal from the S&P 500 "club".
To this day, Macy's continues to be challenged. According to the latest financial report data, Macy's net sales in Q3 2023 will be 48US$600 million, down 7% year-on-year;Net income was $43 million, compared to a net income of $1 in the year-ago quarter0.8 billion USD;Same-store sales were down 70%, more than expected by 72%。This reflects the challenges that the retail industry still faces, including competition and changes in consumer shopping Xi.
In addition, Macy's is also in an internal management crisis. Just last month, during Black Friday, more than 400 Macy's workers in Washington state planned a three-day strike, accusing unfair labor practices and demanding higher wages.
And its chairman and chief executive, Jeff Gennette, is scheduled to retire in February 2024. Tony Spring, executive vice president and chairman and chief executive officer of Macy's Bloomingdale, has been named president and chief executive officer-designate of Macy's.
It remains to be seen whether this will affect the progress of Macy's acquisition. The only thing that is certain is that the 165-year-old department store empire is gradually heading for decline.