What’s driving Macy’s stock higher?

E-commerce has taken a toll on brick-and-mortar stores, including: Macy’s (NYSE:M) has been down for most of the last decade, but has had some nice bounces in the intervening years.

But Macy’s stock has soared this week, surging about 16% to about $20 per share, with one major catalyst: a buyout offer from a private equity investor. Let’s take a look at the latest chapter in this ongoing story.

The fight to take Macy’s privacy away

In late 2023, Macy’s received an offer from private equity firms Arkhouse Management and Brigade Capital Management to buy it and take it private. But the retail chain’s board rejected a cash offer of $21 per share, or $5.8 billion, for the outstanding shares. Macy’s board said the offer lacked “compelling value” and questioned the ability of potential buyers to finance the deal. The stock has risen slightly since Macy’s first rejection on Jan. 21.

Then, on February 20, Archhouse, which has 4.4% ‘economic exposure’ to Macy’s, waged a proxy war and nominated nine people to the Macy’s board of directors.

Arkhouse Managing Partners Gavriel Kahane and Jonathon nominated qualified independent directors to restructure Macy’s Board of Directors “due to the Board’s poor performance and continued refusal to engage constructively with a group of trusted and motivated buyers.” “I decided to do it,” he explained. Blackwell.

Macy’s countered, “Despite multiple opportunities, Arkhouse and Brigade have not yet provided financing details that would improve the viability of the proposal, and instead of attempting a constructive dialogue, Arkhouse has decided to launch a proxy contest.” I did.

On February 27, Macy’s announced its fourth quarter earnings results and its turnaround plan, called “A Bold New Chapter.” The plan is “designed to challenge the status quo to fundamentally reposition the company” and includes closing 150 stores over the next three years, redistributing investment to the remaining 350 stores and laying off about 2,000 people.

But Macy’s turnaround plan and fourth-quarter results failed to make a difference. In fact, the stock price has fallen about 12% since the announcement on February 27th.

Arkhouse and Brigade increase their offers.

The story took a new turn on March 3, when Arkhouse and Brigade raised their offer to acquire Macy’s to $24 per share, or $6.6 billion. The pair also appointed Fortress Investment Group and One Investment Management as equity partners to ease funding issues.

“We remain frustrated by the delaying tactics adopted by Macy’s board and its continued refusal to engage with a group of trusted buyers. Nonetheless, we remain firm in our commitment to execute this transaction,” Kahane and Blackwell said in a statement. “While the restructuring plan Macy’s unveiled last week failed to inspire investors, its fourth-quarter results and year-end results provided greater confidence in the company’s long-term prospects if it goes private.”

They added that there is room to increase the purchase price further if necessary.

Macy’s responded to the offer in a slightly different tone, saying it would evaluate the offer and “keeps an open mind about the best path forward” for creating shareholder value.

Unlike the last offering, this one received positive reviews from shareholders, with the stock rising about 16% on Monday and remaining virtually flat on Tuesday morning.

What does this mean for Macy’s investors? Those who have been patiently waiting for a turnaround or some kind of action will soon see some action through an acquisition or turnaround plan. The price-to-earnings ratio (P/E) of 6 is pretty cheap, but there’s too much earnings uncertainty to say it’s good value right now. However, it would be nice to see more movement in this ongoing story.

disclaimer: All investments involve risk. Under no circumstances should this article be taken as investment advice or constitute liability for investment profits or losses. The information in this report should not be relied upon for investment decisions. All investors should conduct their own due diligence and consult their own investment advisors when making trading decisions.