To The Moon

A group of activist investors led by Arkhouse Management and Brigade Capital Management raised their offer for $Macy's(M)$ again over the weekend, the third time they have raised their offer for the retail giant.

The latest offer is $24.80 per share, a small increase from the previous $24, for a total valuation of about $6.97 billion.The news pushed Macy's shares up 12.6% on July 5

Takeover offer history

• December 2023: initial offer of $21 per share

• March 2024: offer price increased to $24 per share

• July 2024: latest offer reaches $24.80 per share

Challenges and Opportunities for Macy's

Despite the attractive acquisition offer, Macy's faces a number of challenges:

1. Pressure on performance: revenue declined 1.2% year-over-year in the first quarter of fiscal 2024, with comparable sales down 1.2%.

2. Mixed brand performance: sub-brands such as Bloomingdale's and Bluemercury performed better, while Macy's main brand was under pressure.

The company is also responding proactively:

1. Strategic realignment: closing underperforming stores while strengthening core brands.

2. Expansion plans: plans to open new Bloomingdale's stores and refurbish Bluemercury stores.

3. Asset optimization: plans to sell some assets to reduce debt and expects to boost EBITDA from 2025.

Investors' dilemma

Options for Macy's management and shareholders in the face of this takeover offer

1. Accept the offer: It could provide substantial short-term returns to shareholders, with room for a premium of about 23% over the current share price.

2. Reject the acquisition: may provide greater returns to shareholders in the long term if management is confident of creating higher value through its own strategy.

Personal View.

1. Activists' continued elevation of the offer is still an indication of their commitment to acquiring Macy's, at least the existing value piece, which they still very much recognize.

2. The likelihood that the offer will be raised again may not be very high, as this time the raise is only 4%.

3. The next week or two could be an important point in time for management to respond.Management's price target may be higher.If accepted, then it will certainly rise to the target, if not, then there is still the possibility of having to come up with a case for a higher value.

4. Don't even rule out a certain possible proxy fight.