Macy’s Terminates Discussions for Acquisition

July 15, 2024  by Karen Parrish in Business Strategy, Industry   

Proposal Lacks Certainty of Financing and Compelling Value

The Macy’s, Inc. Board and management team have engaged in good faith with Arkhouse and Brigade for more than seven months since their initial outreach in December 2023 expressing interest in acquiring the Company.

• In March 2024, the Company entered into a confidentiality agreement with Arkhouse and Brigade to facilitate a due diligence process, given they had increased their proposal to $24.00 per share (from the initial $21.00 proposal) and indicated a willingness to increase this price further upon access to customary diligence, potentially to an amount that the Board could consider compelling.

• The Company has since expended hundreds of hours addressing Arkhouse and Brigade’s extensive diligence requests, facilitating diligence meetings with multiple members of the Company’s senior management as well as its financial and real estate advisors and providing thousands of documents with a level of detail that went well beyond what is customarily required to obtain financing for a public company acquisition, such as providing complete store-by-store P&L’s and full-form leases for each Macy’s, Bloomingdale’s and Bluemercury location. The Company also permitted Arkhouse and Brigade to contact – and share confidential information with – over a dozen credible financing sources.

• In May 2024, the Company and Arkhouse and Brigade mutually agreed to a timetable for them to deliver a fully financed and actionable proposal to Macy’s, Inc. The Company formally requested two items be delivered by June 25, 2024: 1) the best purchase price per share that Arkhouse and Brigade were prepared to pay to acquire the Company, and 2) fully negotiated commitment papers for all the debt and equity needed to finance the revised proposal, subject only to the negotiation of definitive documentation and customary confirmatory due diligence.

• On June 26, 2024, rather than delivering a definitive, fully financed and actionable proposal, Arkhouse and Brigade submitted a response they characterized as a “check in” letter expressing an interest in acquiring all of the outstanding shares of the Company for $24.80 per share in cash, which is within a range the Board had previously communicated to Arkhouse and Brigade was not compelling. Further, the financing papers that accompanied the “check in” letter were insufficient to give the Board confidence that a fully committed, financed and viable offer could be attained within any reasonable period of time – and necessitated bearing an unacceptable lack of certainty for the Company and its shareholders.

More specifically, Arkhouse and Brigade submitted highly conditional and unsigned drafts of financing commitment letters, subject to numerous conditions, including, in certain cases, diligence on Arkhouse and Brigade themselves. Notwithstanding the Company’s financial advisors making it clear that “enterprise level” financing commitment papers would be required (as is customary for public transactions in the sector), Arkhouse and Brigade delivered “asset-based” financing commitment papers tied to the valuation of the Company’s owned real estate, and subject to appraisals, credit rating outcomes, and loan-to-value thresholds. Finalizing and funding these commitment letters would require lengthy additional diligence, including independent, third-party appraisals of over 140 of the Company’s individual store and distribution center locations.

Macy’s, Inc. Turning Its Full Focus to Executing “A Bold New Chapter” Strategy

Following a careful review of the “check in” letter and related materials in consultation with its independent legal and financial advisors, the Board unanimously determined that the latest Arkhouse and Brigade proposal remains non-actionable and fails to provide compelling value to Macy’s, Inc. shareholders. The Board believes that continuing diligence is not warranted or in the best interests of shareholders given: 1) the significant uncertainty that Arkhouse and Brigade’s financing could or would ultimately be completed given the substantial conditionality in their financing papers; 2) the less than compelling value proposed; and 3) the significant distraction for the management team at a critical point in the execution of the Company’s strategy. Accordingly, the Board has further unanimously determined to terminate discussions with Arkhouse and Brigade and turn its complete focus to enhancing value for shareholders through the Company’s standalone operating plan.

“As the Board has consistently demonstrated throughout this process, we are open-minded to exploring all paths to enhancing shareholder value. At this time, after careful review, we have concluded that Arkhouse and Brigade’s proposal lacks certainty of financing and does not deliver compelling value, notwithstanding the significant time, resources, and information shared during this process. The Board fully supports A Bold New Chapter strategy, and we believe it provides the best opportunity for value creation,” said Paul Varga, lead independent director of Macy’s, Inc.

Tony Spring, chairman and chief executive officer of Macy’s, Inc., added, “Our team continues to be singularly focused on creating value for our shareholders. While it remains early days, we are pleased that our initiatives have gained traction, reinforcing our belief that the Company can return to sustainable, profitable growth, accelerate free cash flow generation and unlock shareholder value. We look forward to keeping all Macy’s, Inc. stakeholders updated on our progress as we continue to implement our plan and meet the evolving needs of our customers.”

Macy’s, Inc.’s strategy, “A Bold New Chapter,” is gaining traction across all three of its strategic pillars – strengthening the Macy’s nameplate, accelerating luxury growth and simplifying and modernizing end-to-end operations. The Company has seen early signs of wins, supported by a steady pace of omnichannel initiatives being developed and capital-light investments focused on better serving customers. Even in this dynamic consumer environment, the Company has seen progress within its First 50 Macy’s nameplate stores, which are already outperforming other go-forward locations.

These achievements are precursors to the value creation potential inherent in this new strategy over time and the Company’s ability to return to growth. The Company will share additional detail on the progress underway on A Bold New Chapter strategy as part of its second quarter 2024 earnings report next month.