Macy’s, Inc. is reporting that following months of engagement with Arkhouse Management Co. LP and Brigade Capital Management, LP, its Board of Directors has unanimously determined to terminate discussions with Arkhouse and Brigade that have “failed to lead to an actionable proposal with the certainty of financing at a compelling value.”
The Board intends the management team to return its complete focus to enhancing shareholder value by executing the company’s “A Bold New Chapter“ strategy.
Proposal Lacks Certainty of Financing and Compelling Value
The Macy’s, Inc. Board and management team have engaged in good faith with Arkhouse and Brigade for over seven months since its initial outreach in December 2023, expressing interest in acquiring the company.
In March 2024, the company entered into a confidentiality agreement with Arkhouse and Brigade to facilitate a due diligence process, given their increased proposal to $24.00 per share from the initial $21.00 proposal and indicated a willingness to increase this price further upon access to customary diligence, potentially to an amount that the Board could consider compelling.
The company said it has since expended hundreds of hours addressing Arkhouse and Brigade’s extensive diligence requests, facilitating diligence meetings with multiple members of the company’s senior management as well as its financial and real estate advisors and providing thousands of documents with a level of detail that went well beyond what is customarily required to obtain financing for a public company acquisition, such as providing complete store-by-store P&L’s and full-form leases for each Macy’s, Bloomingdale’s and Bluemercury location.
The company also permitted Arkhouse and Brigade to contact and share confidential information with over a dozen credible financing sources.
In May 2024, the company reported it had mutually agreed with Arkhouse and Brigade to a timetable for them to deliver a fully financed and actionable proposal to Macy’s, Inc. The company formally requested two items be delivered by June 25, 2024:
- The best purchase price per share that Arkhouse and Brigade were prepared to pay to acquire the company.
- Fully negotiated commitment papers for all the debt and equity needed to finance the revised proposal, subject only to the negotiation of definitive documentation and customary confirmatory due diligence.
On June 26, 2024, rather than delivering a definitive, fully financed and actionable proposal, Arkhouse and Brigade reportedly submitted a response they characterized as a “check in“ letter expressing an interest in acquiring all of the outstanding shares of the company for $24.80 per share in cash, which is within a range the Board had previously communicated to Arkhouse and Brigade was not compelling.
Further, Macy’s reported the financing papers that accompanied the “check-in” letter were insufficient to give the Board confidence that a fully committed, financed and viable offer could be attained within any reasonable period of time and necessitated bearing an unacceptable lack of certainty for the company and its shareholders. More specifically, Macy’s said Arkhouse and Brigade submitted highly conditional and unsigned drafts of financing commitment letters, subject to numerous conditions, including, in certain cases, diligence on Arkhouse and Brigade themselves.
Notwithstanding the company’s financial advisors making it clear that “enterprise level” financing commitment papers would be required (as is customary for public transactions in the sector), Arkhouse and Brigade reportedly delivered “asset-based” financing commitment papers tied to the valuation of the company’s owned real estate, and subject to appraisals, credit rating outcomes, and loan-to-value thresholds. Macy’s said finalizing and funding these commitment letters would require lengthy additional diligence, including independent, third-party appraisals of over 140 of the company’s individual store and distribution center locations.
After carefully reviewing the “check in“ letter and related materials in consultation with its independent legal and financial advisors, the Macy’s Board unanimously determined that the latest Arkhouse and Brigade proposal remains non-actionable and fails to provide compelling value to Macy’s, Inc. shareholders.
The Board said it believes that continuing diligence is not warranted or in the best interests of shareholders given the significant uncertainty that Arkhouse and Brigade’s financing could or would ultimately be completed, given the substantial conditionality in their financing papers, the less-than-compelling value proposed and the significant distraction for the management team at a critical point in the execution of the company’s strategy.
Accordingly, the Board has further unanimously determined to terminate discussions with Arkhouse and Brigade and turn its focus to enhancing shareholder value through the company’s standalone operating plan.
“As the Board has consistently demonstrated throughout this process, we are open-minded to exploring all paths to enhancing shareholder value. At this time, after careful review, we have concluded that Arkhouse and Brigade’s proposal lacks certainty of financing and does not deliver compelling value, notwithstanding the significant time, resources, and information shared during this process. The Board fully supports A Bold New Chapter strategy, and we believe it provides the best opportunity for value creation,“ said Paul Varga, lead independent director of Macy’s, Inc.
Tony Spring, chairman and chief executive officer of Macy’s, Inc., added, “Our team continues to be singularly focused on creating value for our shareholders. While it remains early days, we are pleased that our initiatives have gained traction, reinforcing our belief that the company can return to sustainable, profitable growth, accelerate free cash flow generation and unlock shareholder value. We look forward to keeping all Macy’s, Inc. stakeholders updated on our progress as we continue to implement our plan and meet the evolving needs of our customers.“
Macy’s, Inc. said its strategy, “A Bold New Chapter,“ is gaining traction across all three of its strategic pillars, strengthening the Macy’s nameplate, accelerating luxury growth and simplifying and modernizing end-to-end operations. The company said it has seen early signs of wins, supported by a steady pace of omni-channel initiatives being developed and capital-light investments focused on better serving customers. Even in this dynamic consumer environment, the company said it has seen progress within its First 50 Macy’s nameplate stores, which are already outperforming other go-forward locations.
The company said these achievements are precursors to the value creation potential inherent in this new strategy over time and the company’s ability to return to growth. The company will share additional detail on the progress underway on A Bold New Chapter strategy as part of its second quarter 2024 earnings report next month.
Bank of America Securities and Wells Fargo Securities are the company’s financial advisors, and Wachtell, Lipton, Rosen & Katz is its legal advisor.
Image courtesy Macy’s Inc.
