Friday saw the shares of Hudson’s Bay Co. and Macy’s go up after reports that the Canadian department store chain had made a takeover bid for the American company.
While Hudson’s Bay shares scaled as high as $10.62 on the Toronto Stock Exchange before pulling back to trade at $10.45, up by four percent from Thursday’s close, Macy’s shares soared by eight percent, trading at $33.34 on the New York Stock Exchange.
The Wall Street Journal cited unnamed sources to report that talks were being held between the companies. The negotiations, however, are at any early stage, and may or may not materialize. Alternatively, the talks may even lead to a partnership of some kind instead of a sale. Uncertainty is the only certainty as of now, the sources added.
In an email response to another print media house, Tiffany Bourré, director of corporate communications at Hudson’s Bay, said that he didn’t want to comment on “rumor or speculation”.
The takeover approach comes at a time when Macy’s finds itself in all sorts of troubles as it struggles with the declining relevance of department store business and the reduced margins on account of heavy discounts to consumers. Traditional brick-and-mortar stores like Cincinnati-based Macy’s have struggled to keep pace with the upstart retailers as e-commerce businesses keep gaining momentum and consumers start buying more over the Internet.
Recession came as a boon for discount stores. Traditional department stores have been forced to cut their prices, which has had a direct bearing on their margins. The fact that Macy’s announced its plans to cut over 10,000 jobs last month besides detailing its intentions to close 68 stores by mid-2017 after another poor performance in the holiday season only underlines the recent nosedive in its fortunes. Macy’s comparable stores’ sales fell by 2 percent in the last quarter.
Macy has been urged by a prominent activist hedge fund, Starboard Value, to generate some cash by selling off the real estate underneath its stores. Starboard had earlier valued the land at about $21 billion. Macy’s later went on to add Starboard as an ally on its board.
Hudson’s Bay, on the other hand, has been on an acquisition spree in recent years. In 2013 it acquired New York-based Saks Fifth Avenue department store chain for USD 2.9 billion before gobbling up German department store chain Galeria Kaufhof. The company had also announced its acquisition of Gilt, a membership-based online retail store, in January last year. With stores throughout Canada, Belgium, Germany, and the United States, the company now aims to own Macy’s, which has a market cap of 10.6 billion US dollars as against Hudson’s Bay’s 1.88 billion Canadian dollars (USD 1.4 billion). Hudson’s Bay has also associated itself with mall owners and property developers with the goal of showing shareholders the value of its real estate without actually selling it off.
While Macy’s market value is about 8 times bigger than Hudson’s Bay’s, the latter has the option of raising equity and debt against its real estate portfolio, which, according to some sources, could be worth $14 billion. Macy’s debt burden of $7.5 billion is, however, a hindrance to the takeover.