Shopping bags in front of the Macy's Inc. flagship store in the Herald Square area of New York, U.S., Monday, Nov. 13, 2023. U.S. holiday sales will grow at a slower pace this year amid economic headwinds such as higher interest rates. said the National Retail Federation.
Bing Guan | Bloomberg | fake images
Tony Spring was already working against the clock to convert Macy's around.
Now, the CEO will have two new faces on the department store retailer's board of directors as he weighs whether to bet on his vision or sell the nearly 166-year-old retailer to activist investors.
The board appointments, announced this week and ending a proxy fight with activist Arkhouse Management, are the latest development in a broader, and so far unsuccessful, effort by Arkhouse and peer Brigade Capital Management to acquire the iconic but struggling American department. store retailer.
“It stops the pressures here and now,” said Neil Saunders, CEO of research firm GlobalData. “But in a way, you're letting the wolf into the hen house.”
Arkhouse first made an offer in December to buy Macy's and take the company private at $21 per share. Macy's rejected the offer. Arkhouse subsequently launched a proxy fight, fielding nine nominees for Macy's 15-person board of directors and raising the bid to acquire the company.
“The board of directors of Macy's, Inc. continues to engage with Arkhouse and Brigade regarding their proposal to acquire the company,” the company said in a statement announcing the new independent directors. “The Board is open-minded about the best path to create value for shareholders and is committed to continuing to take actions that it believes are in the best interests of the Company and all Macy's, Inc. shareholders.”
For Macy's, this week's deal — an agreement to name two of Arkhouse's nine candidates to its board of directors — could stem the distraction and high costs of a protracted campaign to win shareholder support. For Arkhouse and Brigade, the move could help hand the keys to investors whose emphasis on real estate, not retail, has raised fears that their acquisition could spell the end for Macy's.
Both Macy's and Arkhouse took a conciliatory tone in their statements this week. But one thing is clear: the battle at Macy's is not over.
changing the tide
Other department store chains have faced challenges from activists in recent years, and even when those efforts are not enough, the pressure can lead to radical changes.
At Kohl's, for example, CEO Michelle Gass left the company to run the denim maker. Levi Strauss after a long battle with Kohl's activists. At the time, her predecessor at Levi, Chip Bergh, said activist investors helped push her out of Kohl's.
Even before Macy's had activist investors breathing down its neck, Spring faced an uphill battle.
The department store, with its flagship store in the heart of New York City's Herald Square and its Macy's Day Parade attracting the attention of millions of families on Thanksgiving morning, holds a historic place in commerce American retailer.
But by almost every measure, Macy's has gotten smaller over the past decade. Employee numbers, store counts and stock price have all fallen as the company has lost market share to competitors, including discount chains like TJ Maxx, big-box stores like Target, as well as online retailers. and specialized stores.
Macy's shares, which hit a 10-year high of $72.80 in July 2015 and sank to a 10-year low of $4.81 in April 2020, closed at $19.30 on Friday, ending the week with a market value of $5.29 billion.
Macy's said in late February that it expects full-year net sales to be slightly lower than a year ago. Anticipates comparable sales, which eliminate the impact of store openings and closings, will range from a decline of approximately 1.5% to a gain of 1.5% year over year on an owned-plus-licensed basis and including the sales in third party markets.
Tony Spring, attends the opening of Bloomingdale's Holiday Window at Bloomingdale's 59th Street store on November 19, 2013 in New York City.
Ben Hider | fake images
Spring, former CEO of Macy's high-end Bloomingdale's chain and the man charged with turning the tide, took the top job in early February, about two weeks after the company announced it would cut more than 2,300 jobs and would close five stores.
Spring laid out his vision for the retailer earlier this year, saying he will close many of the company's fledgling namesake stores and instead invest in stores that have done better. That includes Macy's locations with the strongest sales, as well as its two chains that have outperformed the namesake brand, high-end department store chain Bloomingdale's and beauty chain Bluemercury.
And while it will move forward with its plans to open smaller versions of Macy's stores in malls, the aggressive plan will close more than 150 stores by early 2027 (nearly a third of its namesake stores), leaving the retailer with approximately 350 Macy's locations.
The number of stores in its other two chains is significantly smaller.
take private
At the same time, Arkhouse and Brigade's takeover effort threatens to completely change the direction of the retailer.
Arkhouse and Brigade have begun conducting due diligence, a process that allows suitors access to the department store operator's books so they can get a clearer picture of the company's finances and potential liabilities.
That in itself had been a hard-fought battle with bidders, who wanted more information to secure funding commitments for the proposed acquisition. Arkhouse claims that Macy's refused to collaborate with it, and Macy's rejected Arkhouse, saying that he did not have the financing for the acquisition he proposed.
GlobalData's Saunders said Macy's future as a retailer could be at risk if Arkhouse is successful in its efforts to take the company private. He said the activist investor has a background in real estate, not retail, and seems more interested in extracting value from Macy's flagship mall and flagship locations than investing in his business.
“It's going to become a very Sears-like situation,” he said. “A very long liquidation, indeed.”
Arkhouse, for its part, has said it plans to keep Macy's stores open. In an interview with CNBC in March, managing partner Gavriel Kahane said the activist investor wants to run Macy's as a retailer, in addition to realizing value from its real estate.
“Our plan is not conditional on store closures. It is not, fundamentally, part of our business plan at all,” he said. “In fact, we believe the property is very valuable, in large part, because it is occupied by Macy's.”
Kahane said the activist investor wants Macy's to become “a stable, growing company that can live for decades and potentially another 150 years.”
But, he argued, a private company is more capable of achieving that goal than a publicly traded one: “We think this needs to happen behind the curtain, away from the public markets. We think the current management has really been resolving to a large extent quarter problems and when you're so focused on that short-term execution, it's really almost impossible to guarantee your long-term viability.
Arkhouse raised its offer last month to $24 per share and said it was backed by Fortress Investment Group and One Investment Management.
Saunders noted that the representation agreement could give the retailer time to carry out Spring's turnaround strategy and try to increase the company's value.
The two new directors joining Macy's board of directors will bring extensive experience in retail and real estate. Richard Clark spent nearly four decades in the real estate industry and was president and CEO of Brookfield Property Group, Brookfield Property Partners and Brookfield Office Properties. The second director, Richard Markee, was CEO of Vitamin Shoppe and held senior positions at Toys R Us and Babies R Us. He currently serves on the board of directors of discount retailer Five Below.
While the two directors are independent, with no affiliation to either Arkhouse or Brigade, they will join the board's seven-person finance committee, charged with evaluating and making recommendations on the takeover bid and any other similar offers.
Arkhouse managing partners Kahane and Jonathon Blackwell said in a statement this week that the appointments of the two new directors “will ensure that our discussions continue to be constructive and that our proposal is treated seriously and expeditiously.”
For Macy's, accepting two new directors will not tip the balance on the board of directors. That could be seen as a victory for the retailer, as it is a far cry from the total number proposed by Arkhouse, said Patrick Gadson, an attorney and co-head of Vinson & Elkins' shareholder activism practice.
Still, the deal allows Arkhouse to move forward as a critical and persistent activist investor, said Gadson, who represented Preferred Apartment Communities, a real estate investment trust that Arkhouse also targeted and made an offer to acquire. Arkhouse was eventually surpassed by another buyer in that effort.
The Macy's deal is missing a non-disparagement clause, he said, and has “light” blackout restrictions, or terms that can temporarily halt activist activity and muzzle the activist from making critical comments. That means Arkhouse and Brigade could still have room to run in their campaign.
“Shareholder activism is a performance-based skill set,” Gadson said. “If the company performs well, notably exceeding expectations, then in all likelihood performance itself would be the remedy. If the company doesn't, then it can do all the governance changes and all the non-core, non-operational gymnastics that want.” “I wish, none of that will save them.”
Correction: This story has been updated to correct the timing and nature of Macy's responses to private bids from Arkhouse Management and Brigade Capital Management.
