As the stock price on Macy’s Inc. cooled following reports that buyout firm Kohlberg Kravis & Roberts made an offer of $52 a share for the retailer, vendors in the apparel and beauty segments weighed in on the impact of KKR taking Macy’s private.
WWD reported that some suppliers said there were clear advantages to a deal, such as the ability of Macy’s to close unprofitable stores as a way to strengthen its business. Other vendors said Macy’s as a private firm would mean that the department stores retailer would be more nimble, and “could move faster and make much needed changes as a privately held company.”
Dan Brestle, chief operating officer of the Estee Lauder Cos. Inc., told WWD that Macy’s “business model has to be tweaked; it has to be changed,” adding that if there were new owners, they “would respect that and partner with us to improve both the businesses.”
Meanwhile, trading on Macy’s stock leveled off after Citigroup cited the largest U.S. department store operator as a company with undervalued real estate. The bank’s analysis sees a 25 percent upside to the share price, WWD reported.
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Citigroup analyst Jonathan Litt valued Macy’s at $25.57 billion, which is about $53.66 a share, and a 27 percent premium over the share price when the report was issued earlier this month.
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The analyst said in his research note that Macy’s operations (free of real estate) “could be worth $20.5 billion, and sales of assets could more than double that figure. Subtract the debt and liabilities, and a net asset value on the company would stand at about $26 billion.
In the backdrop of any pending deals – especially leveraged buyouts – are worries that the debt markets are drying up due to the subprime lending woes. So, if a company is pondering ways to raise money, it might look at launching an initial public offering. But an IPO might not be the right solution. Here’s where a “private investment in public equity” might work, according to a report in WWD earlier this month.
The Wet Seal Inc., Wilson’s The Leather Experts Inc. and Whitehall Jewellers Inc. all did PIPEs, which “typically involve a private equity firm or other investor buying a company’s stock at a discount.”
Gilbert Harrison, chairman of Financo Inc. told WWD that a “PIPE can be used for growth, restructuring and capital to fund for an acquisition. Much depends upon the bylaws of the companies, which will determine whether it needs shareholders’ approval or what other requirements are necessary.”
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