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Macy's is called 'attractive' target for takeover

The Baltimore Sun

Macy's Inc., the second-largest U.S. department store company, is an "attractive" target for a leveraged buyout and may fetch $50 to $52 a share, a Goldman, Sachs & Co. analyst said yesterday.

Macy's cash flow and "valuable" real estate, as well as the company's potential to cut costs and take on additional debt make it a possible takeover candidate, New York-based Adrianne Shapira wrote in a note to investors.

Macy's converted more than 400 former May Department Store Co. locations to its namesake chain in September, about a year after buying the rival for $11 billion.

A $52-a-share bid, 30 percent more than today's stock price, would value the company at $24 billion and be the largest private equity buyout of a retailer.

"I don't see that as such a big premium and I certainly don't think management would find that attractive," said Michael Appel, a consultant at Quest Turnaround Advisors LLC in Purchase, N.Y.

"What management could do from a longer-term perspective, once they get this May stores thing behind them, is get some synergies and significantly increase earnings," Appel said.

Shares of Macy's, based in Cincinnati, rose 11 cents to close at $39.78 on the New York Stock Exchange.

"We don't comment on rumors or speculation," Macy's spokeswoman Sharon Bateman said.

Sales at stores open at least a year have missed analysts' estimates and Macy's own forecasts each month since the company began including the results of former May stores in February.

Analysts said shoppers were used to more coupons giving discounts. Sales of home furnishings also have been weak.

Macy's reported a 3.3 percent same-store sales drop in May, the biggest decline in 18 months, compared with analysts' estimates for a 1.4 percent retreat.

Shapira, who rates the shares "buy," said it wasn't clear whether speculation over a possible buyout was credible. "A deal could make sense for as much as $50-$52," she wrote.

Macy's could generate after-tax proceeds of $4.6 billion by selling and leasing back its locations, Shapira wrote.

The retailer owns more than half of its 858 Macy's and Bloomingdale's stores. The rest the company leases or owns on leased land.

Macy's posted $27 billion in sales last year and reported $12.7 billion in long-term debt and other liabilities as of February.

The company, which changed its name from Federated Department Stores Inc. this month, trails Sears Holding Corp. in sales.

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