Canada's Hudson's Bay
makes takeover approach for Macy's: sources
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[February 04, 2017]
By Greg Roumeliotis and Michael Flaherty
(Reuters) - Hudson's Bay Co has made a
takeover approach for struggling retailer Macy's Inc, people familiar
with the matter said, trying to push further into the U.S. market where
it already owns the Lord & Taylor and Saks Fifth Avenue chains.
While the Toronto-based company faces major financing and operating
challenges in completing a deal to buy Macy's, which is trying to
overhaul its operations, it could use its existing foothold in the U.S.
to save on administrative costs and have more negotiating power with its
vendors.
Shares of Macy's closed up 6.4 percent at $32.69 on Friday. Hudson's Bay
rose to C$10.39.
Talks between the companies are at an early stage, one of the people
said. The sources asked not to be identified because the negotiations
are confidential. Hudson's Bay said it does not comment on rumors or
speculation, while Macy's declined to comment.
Macy's, the host of New York's annual Thanksgiving Day parade, is in the
midst of a turnaround engineered by Chairman and Chief Executive Officer
Terry Lundgren, who assumed leadership of the company in 2004.
Lundgren is set to step down this year, and could earn $80.24 million if
there is a change of company control, according to a filing.
![](http://archives.lincolndailynews.com/2017/Feb/04/images/ads/current/pacesetter_lda_041116.png)
Macy's has also been under pressure from activist hedge fund Starboard
Value LP since 2015 to separate its real estate from its retail business
to better monetize its real estate assets. Starboard estimated those
assets to be worth $21 billion.
Starboard held around 1 percent of Macy's stock as of Sept. 30 last
year, making it the company's 15th largest shareholder.
Starboard founder Jeff Smith did not return calls seeking comment.
PRIME REAL ESTATE ASSETS
Cincinnati, Ohio-based Macy's has around 900 stores in the U.S., which
includes its Bloomingdale's outlets and its flagship store in New York
City's Herald Square.
Hudson's Bay is well known for making money off its real estate assets.
After buying Saks for $2.9 billion in 2013, it secured a $1.25 billion
20-year mortgage for its Fifth Avenue flagship location in New York,
valuing the property at $3.7 billion.
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![](../images/020417pics/busine75.jpg)
People line up at the entrance of Macy's Herald Square ahead of
early opening for Black Friday sales in Manhattan, New York, U.S.,
November 24, 2016. REUTERS/Andrew Kelly/File Photo
![](http://archives.lincolndailynews.com/2017/Feb/04/images/ads/current/ccaonline_lda050208.png)
Should Hudson's Bay acquire Macy's, it will likely bring similar real estate
prowess to the jewel locations owned by the retailer. Still, should Hudson's Bay
opt to sell some of Macy's less desirable locations, it would have to compete
with a flood of properties for sale, as other struggling retailers also shed
properties.
Hudson's Bay has traditionally financed deals through its joint ventures, giving
it the ability to pull off deals that many peers might struggle to do without
impacting their credit rating.
It has a partnership with Canada's RioCan Real Estate Investment Trust and with
U.S.-based Simon Property Group Inc.
Hudson's Bay could raise equity and debt against its real estate portfolio to
fund the deal, according to the Wall Street Journal, which first reported the
news.
Cowen and Company said in an analyst note that Macy’s has attractive qualities
for a buyer, including a low price to earnings valuation of 10 times, $2.8
billion of free cash flow and a large real estate portfolio. But chances of a
deal were dim, the note said.
Macy's struggling turnaround and the continued pressure it faces from Amazon
make a deal unlikely, Cowen said in the note, adding that Amazon itself could be
a potential buyer of the company, given its expansion into physical stores.
Amazon did not immediately return a request for comment.
Founded in 1670, Hudson's Bay began as primarily a fur trading business and once
owned more than 40 percent of what is now Canada, and also a significant portion
of Minnesota and North Dakota.
It was acquired in 2008 by mall developer NRDC Equity Partners, headed by
Richard Baker. The company, which is still run by Baker, went public in 2012.
(Additional reporting by Lauren Hirsch in New York, Solarina Ho in Toronto,
Nandita Bose in Chicago and Siddharth Cavale in Bengaluru; Editing by Anil
D'Silva, Bernadette Baum and Bernard Orr)
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