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Macy's pressure ramps up with increased bid

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Illustration: Natalie Peeples/Axios

Macy's board is running out of excuses when it comes to earnestly considering a newly enhanced buyout offer from activist investors Arkhouse and Brigade.

Why it matters: Already under significant pressure, Macy's is also contending with an upcoming proxy contest.

Catch up quick: Arkhouse Management and Brigade Capital Management have increased their bid for Macy's by nearly $1 billion to roughly $6.6 billion yesterday.

  • Fortress Investment Group and One Investment Management US would contribute 50% of equity, and Arkhouse says it has identified large "institutional financing sources for each debt component of the transaction" for the rest.

The big picture: "It's really hard to make an argument that any department store is going to be … worth more in the future than it is today," says Steve Dennis, president of SageBerry Consulting.

Yes, but: Macy's CEO Tony Spring just took the helm last month, with a new plan to revamp product assortment, improve omnichannel, and close stores.

  • "It would be really hard, I think, for the current board to accept this offer when they've got a new CEO and they've got a new strategy in motion," Dennis says.
  • Plus, "legacy companies are more inclined to defend the status quo," Dennis adds.

Zoom in: Spring's plan, however, lacks discussion around customer dynamics and how they'll regain lost market share from customers fleeing to the likes of TJ Maxx, Ulta and Sephora, Dennis says.

💭 Our thought bubble: Spring's turnaround plan echoes prior plans the retailer has undertaken, to limited success.

What we're watching: Macy's could generate some profitability and value through asset sales and real estate monetization, says David Silverman, senior director at Fitch Ratings.

  • But long term that could come at the expense of investing in the company and ultimately lead to the company's essential liquidation.
  • "Maximizing a near-term shareholder opportunity that the board sees as possibly long-term damaging to the company as a whole is something that they would have to look at," Silverman says.

Between the lines: Initially, Macy's board said they didn't think the initial proposal's value was high enough, and questioned the legitimacy of the financing.

  • "When you solve the problem by increasing the value, now suddenly that requires more financing," Silverman says. "So in solving one problem, you might have actually exacerbated the other problem."
  • "The equity I think reflects some of those more recent challenges," Silverman adds. "Maybe from a valuation standpoint, the concerns are mitigated by, 'It's easier to make a bid right now relative to a time where the stock prices are higher.'"

Macy's did not respond to Axios' request for comment.

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