Shares of retailer Macy’s (M) sank over 13% in Monday morning’s trading session as ongoing buyout talks broke down. The talks ultimately went nowhere, and that meant little confidence from frustrated shareholders.
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Macy’s had been in talks with two investors—Brigade Capital Management and Arkhouse Management—that were poised to buy Macy’s for as much as $6.9 billion. That deal also would have taken Macy’s private, but it was a deal that wouldn’t fly. Macy’s turned its nose up at the deal, saying that the proposal “…fails to provide compelling value…” for shareholders.
The latest deal saw Brigade and Arkhouse push their offer up to $24.80 a share back in June. With Macy’s shares currently trading in the $16 and change range, that’s a pretty healthy premium. But Macy’s found the whole prospect suspect; reports suggested Macy’s wasn’t pleased with the solidity of funding involved in the deal and believed it was a distraction for management, which was still in the middle of a turnaround plan.
A Doomed Model?
A healthy premium might have sounded like a good idea to investors, especially given how many of them just cut bait and ran from Macy’s to begin with. The premium also would’ve helped due to the nature of Macy’s business. Physical retail has been on the ropes for some time now as e-commerce has forced department stores to significantly step up their game.
But it gets worse, particularly in New York City; a report from February noted that retail theft in New York City alone hit $4.4 billion in 2022, and it hasn’t slowed up much since. Macy’s focus on a retail model that was already sluggish in an environment of high taxes and soaring retail theft figures might have made a buyout worthwhile. But Macy’s is doubling down on its turnaround strategy…for better or worse.
Is Macy’s a Buy or Sell?
Turning to Wall Street, analysts have a Moderate Buy consensus rating on M stock based on four Buys, five Holds, and one Sell assigned in the past three months, as indicated by the graphic below. After a 8.07% rally in its share price over the past year, the average M price target of $19.50 per share implies 17.75% upside potential.
