A Challenging Takeover for Macy’s

Citi analysts have downgraded Macy’s stock from Neutral to Sell, citing the complexity of a potential takeover in a recent report. This comes after news broke that a group of investors has offered $5.8 billion to acquire the retailer and take it private, as reported by The Wall Street Journal.

Market Reaction and Analyst Doubts

Following the downgrade, Macy’s shares experienced a 2.5% drop to $20.21 in premarket trading. This decline comes after a significant surge of 19% on Monday.

In their report, Citi analysts express skepticism about the likelihood of the deal materializing. They note that past attempts at similar takeovers have faced challenges, particularly given the current interest rate environment and the secular challenges Macy’s is currently facing. While they downgrade their rating on Macy’s stock, they maintain their target price at $14.

Real Estate Value and Monetization Challenges

Citi analysts believe that Macy’s holds more real estate value compared to its peers. However, they argue that monetizing this value poses significant difficulties. The stock is currently trading at about $21 per share, with an enterprise value of $8.6 billion. Given the structural challenges in the core business, it remains uncertain whether the real estate value justifies the current enterprise value.

The Proposal

According to insiders familiar with the matter, Arkhouse Management, an investing firm focused on real estate, and global asset manager Brigade Capital made a proposal on December 1. As part of the offer, the group, which already holds a large stake in Macy’s, aims to acquire the remaining shares for $21 per share.

Arkhouse Management declined to comment on the matter, while Brigade Capital has yet to respond to a request for comment.

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