Business

Business Report: What Could Hudson's Bay see in Macy's?

Business Report: What Could Hudson's Bay see in Macy's?

Macy's stock soared 10% Friday after the Wall Street Journal reported that Hudson's Bay, the Toronto and New York-based parent company of Lord & Taylor and Saks Fifth Avenue, might be interested in buying the iconic retailer.

Cowen's Oliver Chen explored the possibility of a Macy's acquisition in a note released this morning before the Hudson's Bay news, and concluded that "a deal could be hard".

Macy's shares shot up as high as $34.37 - up 11.9 percent - before trading was briefly halted for the stock on the New York Stock Exchange.

Shares of Macy's jumped 6.4 percent to $32.69 Friday after the Wall Street Journal reported the talks. The sources asked not to be identified because the negotiations are confidential.

The report of a possible deal comes as Macy's prepares for a long-planned changing of the guard, in which chief executive Terry Lundgren will step down from that role and be replaced by Jeff Gennette.

Macy's has a market capitalization of $10.4-billion US intraday, versus the Bay's $1.89-billion Canadian or approximately $1.45-billion USA, prompting the idea real estate is part of the story. Starboard estimated those assets to be worth $21 billion.

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Macy's said in March a year ago it had tapped William Lenehan, a real estate investment trust expert and a close associate of Starboard, to its board.

Cincinnati, Ohio-based Macy's has around 900 stores in the USA, which includes its Bloomingdale's outlets and its flagship store in New York City's Herald Square. Whether money for a large transaction is borrowed or invested, Hudson's Bay would likely need to make deep cuts to reap an acceptable return on its investment.

A year after the Canadian company bought Saks Fifth Avenue in 2013, its flagship store on Fifth Avenue was appraised for $3.7 billion - more than the $2.9 billion Hudson's Bay spent to acquire the entire chain.

BNN speaks with Mark Satov, strategy advisor with Satov Consultants, about reports that Hudson's Bay is in takeover talks with Macy's.

Cowan analyst Oliver Chen was inclined to think Hudson's Bay might be more interested in buying a piece of Macy's, such as flagship store locations in Chicago or NY or its upscale Bloomingdale's brand.

No one can agree on what Hudson's Bay Co.'s extensive collection of department stores is worth, and that sets up an intriguing opportunity for investors who thrive on uncertainty.


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