According to Wall Street Journal, private equity groups Arkhouse Management and Brigade Capital Management have proposed a $5.8 billion offer to take $Macy's(M)$ private, which means a $21 per share.
Based on current information, these two private equity firms already hold some Macy's stock. Looking at the stock price trend over the past month, the increase after the financial report is far beyond other companies in the industry, such as $Nordstrom(JWN)$ $Wal-Mart(WMT)$, $Target(TGT)$ etc. This indicates that the private equity group had already established positions well in advance.
It's no wonder that Macy's has been soaring after the financial report, even stronger than expected.
The closing price last Friday was $17.39 per share, so the premium of the offer price is approximately 21%.
It is reported that the offer was made on December 1st, and Macy's board of directors has already held a meeting to discuss the matter, but it is currently unclear what their inclination is. Arkhouse and Brigade Capital believe that Macy's is undervalued and are prepared to increase their offer based on due diligence. They have also received support from an investment bank, which has provided a letter regarding their ability to raise funds to complete the transaction.
Looking at the options activity, it is indeed true that insiders knew about this on December 1st. (Or maybe it was the parties involved, anyway).
For private equity groups, now is a relatively proactive time.
1. If the company feels that the offer is reasonable and believes that privatization at this stage can bring more operational efficiency, it will be reflected. It is not impossible to go public in the future, or to sell directly to other groups.
2. If the company feels that the offer is unreasonable, then they have to take "more practical action" to prove the improvement in operational efficiency, and the company's valuation will also increase. Therefore, there is a greater demand for stock price growth. At the same time, if the company prefers to be acquired but feels that the offer is unreasonable, there is even the possibility of increasing the offer price.
Therefore, the probability of profitability for this private equity group is very high.
From the perspective of ordinary investors, although M's performance in Q3 exceeded expectations, the year-on-year decline in revenue is still a weakness. After experiencing inflation and "zero-yuan purchases" this year, they will soon face the economic prospect of a "soft landing", and the days of the board of directors may not be easy.
Personally, I tend to choice2, increase the offer price.
Happy Trading!
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