Adam Putz February 03, 2017
HBC has trained its sights on struggling retail giant Macy’s. Between them, the companies account for 505 years of business experience.
As HBC approaches Macy’s about a takeover, it looks to leverage that experience as well as the value bound up in Macy’s real estate holdings to combat today’s ecommerce companies, which have forced some brick-and-mortar retailers out of business.
But HBC can point to recent retail acquisitions with more than a glimmer of hope as it negotiates with Macy’s. Since going public in 2012, the company has acquired, among other signature assets, Saks Fifth Avenue for $2.9 billion and Lord & Taylor for $427 million. In 2014, just two years after the Saks deal was announced, the flagship store in Manhattan alone was reportedly appraised for $3.7 billion, a roughly 27.5% premium to what HBC paid for the company itself.
Macy’s existing partnership with Brookfield Asset Management, which it struck late last year in order to rework over 50 properties, should also speak to HBC's interests if it were to look to translate a deal for the embattled retailer into real estate gold. Macy’s activist investor Starboard Value has priced its real estate portfolio at some $20 billion, according to The Wall Street Journal, and it has pressed for the sale of at least some or all of those assets, making a deal with HBC as much a property pickup as anything else. Macy’s currently operates over 800 stores along with marquee names like Bloomingdale’s but reportedly has debt in the neighborhood of $7.5 billion.
The company’s performance woes have already claimed a few heads. In June, CEO Terry Lundgren announced that he would step aside to let current president Jeff Gennette run the company. And per an SEC filing on January 9, it was made clear that Peter R. Sachse, chief growth officer and one of Macy's executives, was being fired after 34 years holding various leadership roles. Under Macy’s Executive Severance Plan, Sachse is nevertheless set to receive a lump sum of $2.7 million.
Both companies saw their share prices improve on the news, with HBC (TSX: HBC) gaining 4% Friday to close at C$10.39 (~$7.97) while Macy’s (NYSE: M) jumped over 6% to close at $32.69 a share.