Macy’s $5.8B Bid Looks Like a Bargain

The Arkhouse Management and Brigade Capital Management proposal to take Macy’s private for $5.8 billion may seem like a lot of money. At one low point last month when share prices were $10.74, the market cap was $2.9 billion, according to data from S&P Global Market Intelligence. As of close of business on December 12, the value had jumped to $5.2 billion, which is still less than the proposed deal.

However, the bid seems a lot lower in the context of the company’s real estate value, even during a currently difficult market. Macy’s operates nearly 500 stores under its own name, with another 30 locations of Bloomingdale’s locations, and some discount and smaller-format shops, according to a Wall Street Journal report.

Nailing down the value of the holdings is difficult. Reuters reported that J.P. Morgan analytics estimated the value of the real estate holdings at $8.5 billion, or $31 a share. That includes the $3 billion value of the company’s famous flagship Herald Square property in Manhattan. Investment bank Cowen values the real estate holdings at between $6 billion to $8 billion.

A Bloomberg Intelligence analyst told Bloomberg that the Herald Square store alone would be $2 billion, though that might be too low because of some current development underway. The total real estate package would top out at $8 billion. Arkhouse and Brigade do value Macy’s at about $8.5 billion, including significant debt.

Yahoo Finance noted that Evercore ISI says $5 billion to $7 billion for everything, with Herald Square between $900 million and $1.5 billion. TD Cowen — total value of $7.5 billion to $11.6 billion.

Macy’s does regularly show a profit. Between 2001 and 2023, there were four times it showed an annual loss. Two multi-billion-dollar annual losses, one in 2009 and the other in 2021, were the result of big goodwill write downs. Neil Saunders, GlobalData’s managing director of retail, told Yahoo Finance that the retail operations were the “icing on the cake.”

On the other hand, Saunders told the Wall Street Journal that the retail business had seen “years of chronic underperformance,” suggesting that serious work is needed.

Also, real estate value on someone’s balance sheet isn’t necessarily liquid or easily converted to another form. An acquired Macy’s could do sale-leasebacks to extract capital, but if the acquirers pulled it out as a return on investment, that would leave a big hole in the assets and resources of the continuing company. It could close more poorly performing stores and sell them, if anyone wanted to buy or could get adequate financing. The company could convert such spaces to other uses, but that is significantly more difficult than often assumed and each conversion would probably be costly. Or it could sell off the Bloomingdale’s and Bluemercury beauty chains and then either pocket the proceeds or reinvest them in the remaining business.