Dive Brief:
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Macy’s Inc. has added two people to its board who had been nominated by Arkhouse Management, which recently joined with Brigade Capital in offering $6.6 billion to acquire the department store. Richard Clark and Rick Markee will serve on the finance committee, which will review the proposal and any alternatives and advise the full board, according to Macy’s and Arkhouse.
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Clark and Markee were among nine nominees put forward by Arkhouse in February, setting the stage for a proxy fight. That slate has been withdrawn, Macy’s said in a press release.
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After rebuffing an earlier offer and refusing to provide Arkhouse and Brigade with financial information, Macy’s board is now engaging with the firms, including granting access to confidential due diligence information, according to Macy’s and Arkhouse.
Dive Insight:
Since their first overture in December, Macy’s would-be suitors, which are focused on the potential of the retailer’s real estate, have come a long way. Two of their favored board prospects have now been appointed by Macy’s, they have access to the financial details they have been demanding and they arguably prompted Macy’s to add a real estate expert, Douglas Sesler, to its board last month.
The question now is whether they will successfully overtake the iconic retailer, which started in the 19th century as a New York dry goods shop and rose to dominance as it gobbled up several local department stores across the country. That has left it with a formidable real estate portfolio.
Macy’s has previously bowed to activist pressure to monetize some of those holdings, but ultimately maintained control over its operations. Its actions this week also ensure that it retains the upper hand, for now, according to GlobalData Managing Director Neil Saunders.
“The ending of the proxy fight is good news for Macy’s as it removes uncertainty over the chain being taken over and allows management to firmly focus on its reinvention plan,” he said in emailed comments. “It is also a good outcome for the Macy’s brand as it means the chain will continue to be run as a retailer rather than as a financial plaything. The addition of two Arkhouse allies to the board is the price that had to be paid to end the fight. This is a reasonable compromise but is one that is a double-edged sword.”
The retailer’s board has now been shaken up, in part due to its planned CEO succession early in the year, as former Bloomingdale’s CEO Tony Spring took over from Jeff Gennette. Effective immediately, Spring has assumed the chairman role, and Gennette is stepping down from the board, Macy’s said Wednesday.
One of the Arkhouse-affiliated directors, Clark, has extensive real estate experience. He is co-founder and managing partner of vertically integrated real estate investment and operating company WatermanClark, and has some four decades of experience in real estate, mergers and acquisitions, and capital markets, per Macy’s release. He previously spent three decades at Brookfield Corp. and his leadership roles included chairman and CEO of Brookfield Property Group, Brookfield Property Partners and Brookfield Office Properties.
The other, Markee, has retail leadership experience including various roles at Vitamin Shoppe, where he was board chair and CEO. He has also held senior positions at Toys R Us and still serves on the boards of various retailers. With the additions and retirements, there are now 15 directors on Macy’s board, and 14 are independent, per Macy’s release Wednesday.
The beefed-up real estate experience provided by Clark and Sesler could be helpful, as Macy’s has already moved to glean value from its properties, according to Saunders. The company in February said it would close 150 underperforming stores, even some that are cash-positive, later saying that real estate value would be a consideration in those closures.
But there is risk in selling off too many stores because it could end up having to pay rent on locations it previously owned, which could weaken its finances, Saunders warned. That became a challenge for Sears as asset monetization overshadowed its retail operations amid its steady decline in recent years.
“In short, this is an early victory for Tony Spring,” Saunders said. “However, he will now need to exercise a firm hand on the tiller to keep the board fully focused on his plan to reinvent the iconic chain.”
