Shopping bags in front of the Macy's Inc. flagship store. In the Herald Square district of New York, US, on Monday, November 13, 2023. Holiday sales in the United States will grow at a slower pace this year amid economic headwinds such as higher interest rates, the National Retail Federation said.
Bing Guan | Bloomberg | Getty Images
Tony Spring was already working against the clock to convert Messi around.
Now, the CEO will have two new faces on the department retailer's board, as he considers whether to stake his vision or sell the nearly 166-year-old retailer to activist investors.
The board appointments, announced this week that bring an end to a proxy battle with activist Arkhouse Management, are the latest development in a broader and so far unsuccessful effort by Arkhouse and fellow bidder Brigade Capital Management to take over the popular but struggling US management. Retail store.
“It takes the pressure off the here and now,” said Neil Saunders, managing director of research firm GlobalData. “But somehow, you're letting the wolf into the chicken coop.”
Arkhouse first made a bid in December to buy Macy's and take the company private at $21 a share. Missy declined the offer. Arkhouse later launched a proxy fight, fielding nine candidates for Macy's 15-person board and raising a takeover bid for the company.
“The Board of Directors of Macy's, Inc. continues to engage with Arkhouse and Brigade regarding their proposal to acquire the company,” the company said in a statement announcing the new independent directors. “The Board is open about the best path to creating shareholder value and is committed to continuing to take actions that it believes are in the best interest of the company and all Macy's, Inc. shareholders.”
For Macy's, the settlement reached this week — an agreement to name two of Arkhouse's nine nominees to its board — could stem the distraction and high costs of a drawn-out campaign to support shareholders. For Arkhouse and Brigade, the move could help hand the keys to investors whose focus on real estate, not retail, has raised concerns that their acquisition could spell the end of Macy's.
Both Macy's and Arkhouse took a conciliatory tone in their statements this week. But one thing is clear: the battle for Messi is far from over.
The tide has turned
Other supermarket chains have faced challenges from activists in recent years, and even when those efforts fail, pressure can lead to sweeping changes.
For Kohl's, for example, CEO Michel Gass left the company to lead the jeans maker Levi Strauss After a long battle with Cole's activists. At the time, her predecessor at Levi's, Chip Berg, said activist investors helped drive her out of Kohl's doors.
Even before Macy's had activist investors breathing a sigh of relief, Spring faced an uphill battle.
The department store—with its flagship store in the heart of New York City's Herald Square and its Macy's Day parade that attracts the attention of millions of families on Thanksgiving morning—occupies a prominent place in American retail.
But by almost every measure, Macy's stores have gotten smaller over the past decade. Its headcount, number of stores, and stock price declined as the company lost market share to competitors, including off-price chains such as TJ Maxx, department stores such as Target, as well as online retailers and specialty stores.
Macy's shares, which reached a 10-year high of $72.80 in July 2015 and fell to a 10-year low of $4.81 in April 2020, closed at $19.30 on Friday, ending the week with a market value of $5.29 billion.
Macy's said in late February that it expects full-year net sales to decline slightly from the previous year. It expects comparable sales, which take the impact of store openings and closings, to range from a decline of approximately 1.5% to a gain of 1.5% year over year on a owned-plus-license basis and including third-party market sales.
Tony Spring attends the Bloomingdale's holiday window unveiling at the Bloomingdale's 59th Street store on November 19, 2013 in New York City.
Bin Haider | Getty Images
Spring, the former CEO of Macy's upscale chain Bloomingdale's and the man charged with turning it around, ascended to the top job in early February, about two weeks after the company announced it would cut more than 2,300 jobs and close five stores.
Spring laid out its vision for the retailer earlier this year, saying it would close several of the company's namesake startup stores and instead invest in stores that performed better. This includes Macy's locations with stronger sales as well as its two chains that outperformed its namesake brand, upscale department store chain Bloomingdale's and cosmetics chain Bluemercury.
While it will press ahead with plans to open smaller versions of Macy's stores in malls, the aggressive plan would close more than 150 stores by early 2027 — nearly a third of its namesake stores — leaving the retailer with roughly 350 Macy's locations.
The number of stores in the other two chains is much smaller.
Take privacy
Meanwhile, acquisition efforts by Arkhouse and Brigade threaten to change the direction of the retailer entirely.
Arkhouse and Brigade have begun conducting due diligence, a process that allows suitors access to the department store operator's books so they can get a clearer idea of the company's finances and potential liabilities.
That in itself was an uphill battle with bidders, who wanted more information to secure financing commitments for the proposed acquisition. Arkhouse claims Macy's refused to do business with it, and Macy's rejected Arkhouse, saying it did not have the financing for its proposed acquisition.
GlobalData's Saunders said Macy's future as a retailer could be in jeopardy if Arkhouse succeeds in its efforts to take the company private. The activist investor has a background in real estate, not retail, and appears more eager to soak up value from Macy's major malls and prime locations rather than invest in its business, he said.
“It's going to be a lot like Sears,” he said. “A very long winding down, actually.”
Arkhouse, for its part, said it plans to keep Macy's stores open. In an interview with CNBC in March, managing partner Gavriel Kahane said the activist investor wanted to run Macy's as a retailer, along with getting value from its real estate.
“Our plan is not conditional on closing stores. It is not an essential part of our business plan at all,” he said. “In fact, we believe the property is very valuable, in large part, because it is occupied by Macy’s.”
The activist investor wants Macy's to become “a stable, growing company that can survive for decades, perhaps another 150 years,” Kahane said.
But he said a private company is better able to achieve that goal than a publicly traded company: “We think that should happen behind the scenes, away from the public markets. We think the current management has actually been largely working on solving the company’s problem.” . “Quarterly, when you're so focused on some sort of near-term execution, it's almost impossible to guarantee your long-term sustainability.”
Arkhouse raised its offer last month to $24 a share and said it had the backing of Fortress Investment Group and One Investment Management.
Saunders noted that the proxy settlement could buy the retailer time to implement Spring's turnaround strategy and try to raise the company's value.
The two new directors joining Macy's Board of Directors will have a deep background in retail and real estate. Richard Clarke has spent nearly four decades in the real estate industry and is a former President and CEO of Brookfield Property Group, Brookfield Property Partners and Brookfield Office Properties. The second director, Richard Markey, was the former CEO of The Vitamin Shoppe and held senior positions at Toys R Us and Babies R Us. He currently sits on the board of directors of retailer Five Below.
Although the directors are independent, with no affiliation with Arkhouse or Brigade, they will join the board's seven-person finance committee, which is charged with evaluating and making recommendations on the takeover bid and any other similar offers.
The new director appointments “will ensure that our discussions remain constructive and that our proposal is treated seriously and expeditiously,” Kahani and Jonathon Blackwell, managing partners at Arkhouse, said in a statement this week.
For Macy's, approving two new directors would not tip the scales on the board. That could be seen as a victory for the retailer, because it's a far cry from the total number suggested by Arkhouse, said Patrick Gadson, an attorney and co-chair of Vinson & Elkins' shareholder activism practice.
However, the settlement allows Arkhouse to move forward as a critical and ongoing activist investor, said Gadson, who represented Preferred Apartment Communities, a real estate investment trust that Arkhouse similarly targeted and made a bid to acquire. The Arkhouse was eventually outbid by another buyer in the effort.
He said Macy's agreement lacks a non-disparagement clause, and has “thin” stoppage restrictions, or conditions that can temporarily halt an activist's activity and prevent the activist from making critical comments. This means that Arkhouse and Brigade still have room to run in their campaign.
“Stakeholder activism is a performance-based skill set,” Gadson said. “If a company is performing well, significantly exceeding expectations, then performance itself is likely to be the cure. If the company fails to do that, it can make all the management changes and all the non-core, non-operational exercises it does” I would like that none of that will save them “
Correction: This story has been updated to correct the timing and nature of Macy's responses to private bids from Arkhouse Management and Brigade Capital Management.
