On March 11, Macy’s told Arkhouse Management that it may be prepared to provide due diligence under a confidentiality agreement, the financial firm said in a filing to the Securities and Exchange Commission Thursday.
Earlier this month, Arkhouse and Brigade boosted their previous acquisition bid by $800 million, raising it to $6.6 billion. In January, Macy’s rebuffed their original $5.8 billion offer. Arkhouse has complained that Macy’s had refused to provide financial details, while the retailer’s board stated that it had “determined that the non-binding proposal does not constitute a basis to enter into a non-disclosure agreement or provide any due diligence information to Arkhouse and Brigade.”
Last month Arkhouse instigated a proxy fight with nine nominations to the Macy’s board. On Thursday, the firm said in its filing that, while it is pleased that the retailer shows some willingness regarding due diligence, “the Arkhouse Parties do not believe that it should have taken months of public advocacy and the launch of a proxy contest to replace a majority of the Board to motivate the Company to do the right thing and engage with Arkhouse Management and Brigade on the Acquisition Proposal” and that their proxy statement remains necessary.
“Company stockholders deserve strong, capable and open-minded independent directors, such as the Arkhouse Nominees, that have the experience and desire to explore every opportunity to unlock stockholder value,” Arkhouse said in the filing.
Macy's declined to comment on the filing. GlobalData analysts said it seems that Macy’s management remains skeptical of the bid, though the increase requires them to consider it.
“Macy's is right to be skeptical of Arkhouse and Brigade's intentions,” GlobalData Managing Director Neil Saunders said in emailed comments. “Given the expertise of the groups and their various statements about Macy's, it is very clear that the heart of their plans involves selling off real estate to generate a return.”
In a previous SEC filing, Arkhouse Managing Partners Gavriel Kahane and Jonathon Blackwell noted that their overarching rationale for their proposal is for Macy’s board to “explore strategic alternatives,” and, specifically, to better manage the retailer’s real estate.
Macy’s appears to be moving to monetize some of its holdings. The company recently announced that it would close 150 underperforming stores within three years, including cash-positive ones, and that decisions will be based on stores’ potential real estate value versus sales growth and profitability.
But that focus, even if a sale to Arkhouse results in extra money for Macy’s shareholders, does little to enhance operations, which are in dire need of an upgrade, Saunders warned.
“Indeed, unless some of the proceeds from the sale were reinvested into things that can improve trading, the shedding of real estate would put Macy's in an even worse position than it is now. There are two ways to generate money from businesses. The first is to focus on the core purpose of the company and to build to create sales and profit growth. The second is to play financial games by monetizing parts of the business,” he said, adding, “We see this as nothing short than a battle for the future of Macy's.”
Correction: This post has been updated to clarify that only Arkhouse is responsible for Thursday’s filing and the proxy fight.
