Macy's has ended seven months of discussions with Arkhouse and Brigade which initially began in December 2023 with the retailer stating the revised proposal lacked certainty of financing and did not provide "compelling value".
GlobalData's retail analyst Neil Saunders told Just Style exclusively that he agreed with the decision as neither Arkhouse nor Brigade offered any long-term value to Macy's beyond the potential short-term gain of monetising from its real estate assets.
Not aligned with Macy's long-term vision
Saunders believes that Arkhouse and Brigade were never aligned with Macy's long-term vision and the distraction of the sideshow they created must now end.
He added: "Many of the activist investor proposals would have significantly weakened Macy’s and hampered its ability to survive as a retail operation."
He does however believe that Macy’s played a good game in patiently furnishing the activist investors with information and allowing their nominees to take some seats on the board.
He said: "As such, it has shown itself to be a willing participant in discussions and has taken the bid seriously, which it must do in the interests of shareholders. However, Macy’s is also right to terminate dealings that were not proving to be fruitful or serious in terms of financing."
He views this decisive action as a "sign of strength" from Macy’s, which, under chairman and CEO Tony Spring, he suggests has a much clearer sense of vision and purpose in working to turn the business around.
Saunders also emphasised that while Macy's has a lot of work to do, it must be allowed the "breathing space and time" to enact changes that will put it on a path to growth and add value for investors.
Lack of certainty for financing and compelling value
Macy's explained that 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.
The retailer shared: "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."
Macy's added that finalising 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 centre locations.
After careful review, the Macy's board unanimously concluded that Arkhouse and Brigade's latest proposal remains non-actionable and fails to provide compelling value to Macy’s shareholders.
The board determined that further diligence is unwarranted and not in shareholders' best interests due to:
- Significant uncertainty that Arkhouse and Brigade’s financing could or would ultimately be completed given the substantial conditionality in their financing papers
- The less than compelling value proposed
- The significant distraction for the management team at a critical point in the execution of the company’s strategy.
Macy's places full focus on executing strategy
Macy's company board intends for the management team to return its full focus to enhancing shareholder value by executing the company’s standalone “A Bold New Chapter” strategy.
Paul Varga, lead independent director of Macy’s Inc. said: "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."
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."
The company pointed out that its strategy is gaining traction across all three of its strategic pillars – strengthening the Macy’s nameplate, accelerating luxury growth and simplifying and modernising end-to-end operations.
It emphasised 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.
