Hudson’s Bay is in early stage talks with Macy’s about a possible takeover of the struggling department-store chain, according to a person familiar with the matter.
Discussions are preliminary, and a full takeover may not be the only option on the table, the person said, asking not to be identified as the details aren’t public.
A takeover of Macy’s may placate activist investor Starboard Value, which has been pushing the retailer to wring more money from its real estate holdings and consider forming a REIT. For Hudson’s Bay, a deal could give its portfolio another marquee name alongside Saks Fifth Avenue and Lord & Taylor, as well as provide it with high-quality real estate in the U.S., including its flagship store at New York’s Herald Square.
“Retail isn’t dead, it’s just too big,” said Poonam Goyal, an analyst at Bloomberg Intelligence. “If you can pay the right price and get a good company with good brand equity and good brands — in mid-tier retailing, Macy’s is the best of them.”
Macy’s shares rose the most in almost six months Friday after the Wall Street Journal reported that Hudson’s Bay made an approach, citing people it didn’t name. The stock surged as much as 12 percent to $34.37 in New York, the biggest intraday gain since Aug. 11. It had been down 25 percent in the 12 months through Thursday. Hudson’s Bay climbed as much as 6.2 percent to C$10.62 in Toronto.
Hudson’s Bay Chief Executive Officer Jerry Storch and representatives for Macy’s declined to comment when contacted by Bloomberg.
The talks come as Macy’s President Jeff Gennette prepares to take over as chief executive officer from longtime leader Terry Lundgren. He’s taking the reins at a time when Macy’s and other department-store chains are in turmoil because of dwindling mall traffic and shoppers’ continued migration online. The Cincinnati-based company cut its annual forecast in January following a weak holiday sales season.
Richard Baker, the chairman of Canada’s oldest retailer, has focused on turning merchants into real estate vehicles. Hudson’s Bay purchased Saks Inc. in 2013 and agreed to buy Metro’s Galeria Kaufhof stores for 2.83 billion euros ($3.2 billion) just two years later. The Canadian firm formed two joint ventures with Simon Property Group and RioCan Real Estate Investment Trust in 2015 valued at about C$2 billion.
Macy’s only has about 730 stores in its portfolio, about half of which are in the best malls. The retailer also sells national brands that Hudson’s Bay might want access to for its own Canadian stores, Goyal said.
“If you think of Hudson’s Bay, it’s a retailer, but it’s also an underlying REIT, and Macy’s has plenty of real estate opportunities,” Goyal said.
If a deal occurs, Hudson’s Bay may fold Macy’s assets, worth about C$26 billion ($20 billion), into HBS Global Properties, its joint venture with Simon, said Steven Salz, an analyst at M Capital Partners Inc. That would appease investors who are looking for a vehicle with a more diversified tenant base. At the time of the joint-venture announcement, Baker said he was seeking to “fatten up” the portfolio before an IPO. The most likely structure is a private real estate investment trust, or an UPREIT, he said.
