Macy's stock falls more than 7% after Citi downgrade amid buyout report

By James Rogers

Citi is skeptical about the possibility of a Macy's buyout

Macy's Inc. shares fell 7.3% Tuesday after Citi downgraded the stock to sell from neutral amid a report that an investor group wants to take the department-store chain private at $21 a share.

The stock pulled back after ending Monday's session up 19.4% following the buyout report. Citing people familiar with the matter, the Wall Street Journal reported Sunday that Arkhouse Management and Brigade Capital Management have submitted a $5.8 million bid for the Macy's stock (M) they don't already own.

Macy's and Arkhouse Management declined to comment when contacted by MarketWatch. Brigade Capital Management has not yet responded to a request for comment.

In a note released Tuesday, Citi said it is not convinced that a deal will happen. "Consider us skeptical that anything will materialize," Citi analyst Paul Lejuez wrote in the note. "Others have gone down this path before (Starboard, Hudson's Bay), we are unsure how advanced talks are ([Macy's] has not commented), and in this interest rate environment and with the secular challenges [Macy's] faces, it may be difficult to finance."

Related: Macy's bonds rally with stock after investor group reportedly offers to take company private

Citi notes that while Macy's has more real estate than other department stores, monetizing that is easier said than done, even for the company's flagship Herald Square store in Manhattan. "A non-strategic buyer may have a different view on monetizing certain locations than [management] such as selling an entire [building] (and not operating a retail store in locations like Chicago and Brooklyn)," wrote Lejuez. "Herald [Square] is the highest value property in its portfolio (though value is not necessarily maximized as a retail store)."

Prior to the COVID-19 pandemic, there were estimates that Macy's Herald Square location could be worth $3 billion to $4 billion, according to Lejuez. "While it is tough to put a specific dollar value on the space currently, we believe it is worth less than it was pre-pandemic," he added.

Macy's has also been down this road before, according to the Citi analyst. "It is worth noting that in 2016 the company hired Doug Sesler, a Wall [Street] real estate financier, to head its real estate team with the specific goal to help maximize shareholder value through real estate monetization," he wrote. "Sesler left the firm in 2021, which signaled to us that there wasn't much else left they were willing to do."

Related: Macy's real estate alone is worth nearly $3 billion more than investors' bid, these analysts say

The department-store chain's stock is down 6.7% in 2023, compared with the S&P 500 index's SPX gain of 20.6%.

Ciara Linnane contributed.

-James Rogers

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12-12-23 1343ET

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