After months of discussion, Macy’s announced its board of directors unanimously voted to terminate the company’s engagement with Arkhouse Management Co. and Brigade Capital Management about a possible acquisition.
Arkhouse and Brigade failed to make an actionable proposal with financing certainty at a compelling value, the company stated. At the board’s direction, management will return its full focus to enhancing shareholder value through the execution of Macy’s A Bold New Chapter strategy, according to Macy’s.
The board and management team engaged in good faith with Arkhouse and Brigade for more than seven months since their initial outreach in December 2023, expressing interest in acquiring the company, Macy’s maintained.
In March, Macy’s entered into a confidentiality agreement with Arkhouse and Brigade to facilitate a due diligence process, given the firms had increased their acquisition proposal to $24 per share, up from $21 initially. The suitors indicated a willingness to increase the price further upon access to customary diligence, potentially to an amount that the board could consider compelling.
Macy’s reported it spent hundreds of hours addressing Arkhouse and Brigade’s extensive diligence requests, facilitating meetings with multiple members of the company’s senior management, as well as its financial and real estate advisors. The company said it provided thousands of documents with a level of detail that went well beyond what is customarily required to obtain financing for a public company acquisition. These included complete store-by-store P&Ls and full-form leases for each Macy’s, Bloomingdale’s, and Bluemercury location. Macy’s said it also permitted Arkhouse and Brigade to contact and share confidential information with more than a dozen credible financing sources.
In May, Macy’s agreed to a timetable developed with Arkhouse and Brigade for delivery of a fully financed and actionable proposal. Macy’s formally requested two items be delivered by June 25: The best purchase price per share that Arkhouse and Brigade would pay to acquire the retailer and fully negotiated commitment papers for all the debt and equity needed to finance the revised proposal, subject to the negotiation of definitive documentation and customary confirmatory due diligence.
On June 26, rather than delivering a definitive, fully financed and actionable proposal, Arkhouse and Brigade submitted, according to Macy’s, 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, a bid that was within a range the board had previously told Arkhouse and Brigade was not compelling. Further, the financing papers that accompanied the check-in letter were insufficient to give the board confidence that Arkhouse and Brigade could deliver a fully committed, financed and viable offer within a reasonable time period.
In specific terms, Macy’s maintained 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. Macy’s financial advisors emphasized that enterprise-level financing commitment papers were necessary, as is customary for public transactions in the sector. Arkhouse and Brigade 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, according to Macy’s. Finalization and funding these commitment letters would require lengthy additional diligence, including independent third-party appraisals of more than 140 of Macy’s individual store and distribution center locations, the retailer pointed out.
Macy’s board believes continuing diligence is not warranted or in the best interests of shareholders, the company asserted, given the uncertainty Arkhouse and Brigade’s financing could or would ultimately be completed given the substantial conditionality, a less-than-compelling value proposed and a significant distraction for the Macy’s management team at a critical point in the execution of company strategy.
“As the board has consistently demonstrated throughout this process, we are open-minded to exploring all paths to enhancing shareholder value,” said Paul Varga, Macy’s lead independent director. “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.”
