Tony Spring was already fighting against time to turn Macy's around. The CEO will now have two new faces on the department store retailer's board of directors as it decides whether to back his vision or sell the almost 166-year-old company to activist investors.
The board appointments, which ended a proxy fight with activist Arkhouse Management, are the latest development in Arkhouse and Brigade Capital Management's larger, and so far unsuccessful, bid to acquire the iconic but struggling American department store retailer.
"It stops the pressures in the here and now," said Neil Saunders, managing director of research firm GlobalData. "But in a way, you're letting the wolf into the henhouse."
Arkhouse first. In December, they made an offer to purchase Macy's and take the firm private for $21 per share. Macy's declined the offer. Arkhouse later started a proxy fight, nominating nine people to Macy's 15-person board and raising its bid to buy the firm.
"The Macy's, Inc. Board is continuing to engage with Arkhouse and Brigade regarding their proposal to acquire the Company," the business stated in its announcement of the new independent directors. "The Board is open-minded about the best path to create shareholder value 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 settlement involves an agreement to appoint two of Arkhouse's nine nominees to its The board may halt the distraction and expensive costs of a lengthy campaign for shareholder approval. For Arkhouse and Brigade, the move might assist hand over the keys to investors whose focus on real estate, rather than retail, has raised concerns that their takeover could mark the end of Macy's.
This week, both Macy's and Arkhouse issued remarks in a conciliatory tone. But one thing is certain: the war at Macy's has not ended. Other department store brands have faced challenges from activists in recent years, and even if such attempts fall short, the pressure can result in significant change.
Kohl's CEO Michelle Gass quit to join Levi Strauss following a struggle with protestors. Her predecessor at Levi, Chip Bergh, claimed that activist investors pushed her out of Kohl's.
Even before Macy's had activist investors on its tail, Spring faced an uphill struggle.
The department store, with its iconic shop in the center of New York City's Herald Square and its Macy's Day parade, which draws millions of families on Thanksgiving morning, has a rich history in American retail.
But by almost. Every indicator shows that Macy's has shrunk over the last decade. Its staff count, shop count, and stock price have all declined as the firm has lost market share to competitors such as discount chains like T.J. Maxx, big-box stores like Target, internet retailers, and specialized stores. Macy's shares, which peaked at $72.80 in July 2015 and fell to a 10-year low of $4.81 in April 2020, ended at $19.30 on Friday, with a market capitalization of $5.29 billion.
Macy's stated in late February that it expected net sales for the whole year to be somewhat lower than the previous year. It expects comparable sales, excluding the impact of shop openings and closures, to range from a 1.5% loss to a 1.5% increase year over year on an owned-plus-licensed basis, including third-party marketplace sales. Spring, the former CEO of Macy's higher-end Bloomingdale's chain and the man entrusted with changing the tide, took over in early February, roughly two weeks after the business revealed plans to lay off more than 2,300 employees and liquidate five shops.
Spring unveiled his strategy for the retailer earlier this year, stating that it will close several of the company's fledgling namesake locations and instead invest in stores that have performed well. This includes Macy's stores with better sales as well as two chains that have outperformed the eponymous brand: Bloomingdale's, a higher-end department store chain, and Bluemercury, a beauty company.
While it will continue to develop smaller versions of Macy's stores in strip malls, the ambitious strategy will close. more than 150 stores by early 2027—nearly a third of its namesake outlets—leaving the business with around 350 Macy's locations.
The store numbers for its other two chains are much lower. At the same time, Arkhouse and Brigade's takeover drive threatens to completely transform the retailer's direction.
Arkhouse and Brigade have started due diligence, which gives the bidders access to the department store operator's accounts so they may acquire a better understanding of the company's finances and possible liabilities.
That had been a difficult struggle with the bidders, who needed more information to get finance commitments for the planned transaction. Arkhouse alleges Macy's declined to interact with it, and Macy's denied Arkhouse's offer, claiming it lacked the necessary funding for the planned merger.
According to GlobalData's Saunders, Macy's future as a retailer might be jeopardised if Arkhouse succeeds in its bid to take the firm private. He According to sources, the activist investor has a background in real estate rather than retail and appears to be more interested in extracting value from Macy's premier mall and flagship sites than in investing in the company.
"It'll become a situation much like Sears," he went on to say. "A very long liquidation, in effect."
Arkhouse, for its part, says it intends to keep Macy's stores operating. In an interview with CNBC in March, managing partner Gavriel Kahane stated that the activist investor intends to manage Macy's as a store while also maximizing the value of its real estate.
"Our approach does not depend on shop closures. It is not a part of our business model at all," he stated. "that fact, we believe that real estate is so valuable, that In large part because it is occupied by Macy's.
According to Kahane, the activist investor wants Macy's to become "a stable and growing company that can live for decades, and potentially another 150 years."
However, he said that a private corporation is more suited to achieve that goal than a publicly listed one: "We believe it needs to happen behind the scenes, away from the public markets. We believe that current management has mostly been solving for the quarter, and when you're so focused on short-term execution, it's nearly hard to secure long-term survival."
Last month, Arkhouse upped their proposal to $24 per share and said that it had the support of Fortress Investment Group and One Investment Management. Saunders highlighted that the proxy settlement might provide the retailer more time to implement Spring's recovery strategy and increase the company's worth.
The two new members who will join the Macy's board will have extensive experience in retail and real estate. Richard Clark worked in real estate for almost four decades and was the former chairman and CEO of Brookfield Property Group, Brookfield Property Partners, and Brookfield Office Properties. Richard Markee, the second director, was the former CEO of Vitamin Shoppe and has held prominent positions at Toys R Us and Babies R Us. He presently serves on the board of the bargain retailer Five Below.
While the two directors are independent, and have no ties with either Arkhouse or Brigade, they will join the The board's seven-person finance committee is entrusted with assessing and recommending the takeover proposal and any other comparable bids.
Arkhouse managing partners Kahane and Jonathon Blackwell stated this week that the installation of the two new directors "will ensure that our discussions continue to be constructive and that our proposal is treated seriously and expeditiously."
Macy's agreement to two additional directors will not tip the board's balance. That might be interpreted as a triumph for the store, given it falls well short of the entire amount recommended by Arkhouse, according to Patrick Gadson, an attorney and co-head of Vinson & Elkins' shareholder activism practice.
Nonetheless, the settlement permits Arkhouse to proceed as a crucial and persistent activist investor, noted Gadson, who represented Preferred Apartment Communities, a real estate investment trust that Arkhouse also pursued and attempted to buy. Arkhouse was eventually outbid by another bidder in that endeavor.
According to him, the Macy's agreement lacks a non-disparagement clause and has "thin" standstill limits, which can temporarily cease activist action and prevent the activist from making critical comments. This implies Arkhouse and Brigade may still have space to go in their campaign.
"Shareholder activism is a performance-based skill set," Mr. Gadson stated. "If the firm performs well and significantly exceeds expectations, the performance itself will most likely be the solution. If the corporation fails to achieve that, they can perform all of the governance adjustments and non-fundamental,
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