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Takeover Approach for Macy's Being Made By Canada's Hudson's Bay: Media Reports

Takeover Approach for Macy's Being Made By Canada's Hudson's Bay: Media Reports
With the aim of push further into the U.S. market where it already owns the Lord & Taylor and Saks Fifth Avenue chains, Hudson's Bay Co has made a takeover approach for struggling retailer Macy's Inc, reported the media quoting people familiar with the matter.
The Toronto-based company could use its existing foothold in the U.S. to save on administrative costs and have more negotiating power with its vendors, while it faces major financing and operating challenges in completing a deal to buy Macy's, which is trying to overhaul its operations.
Sources reportedly said that the talks between the companies are at an early stage. While Macy's declined to comment, Hudson's Bay said it does not comment on rumors or speculation.
Engineered by Chairman and Chief Executive Officer Terry Lundgren, who assumed leadership of the company in 2004, Macy's, the host of New York's annual Thanksgiving Day parade, is in the midst of a turnaround.
According to a filing, if there is a change of company control, Lundgren is set to step down this year, and could earn $80.24 million.
IN order to separate its real estate from its retail business to better monetize its real estate assets, Macy's has also been under pressure from activist hedge fund Starboard Value LP since 2015.  Starboard estimated those assets to be worth $21 billion.
Making it the company's 15th largest shareholder, Starboard held around 1 percent of Macy's stock as of Sept. 30 last year.
There were no comments from Starboard founder Jeff Smith.
Including its Bloomingdale's outlets and its flagship store in New York City's Herald Square, Cincinnati, Ohio-based Macy's has around 900 stores in the U.S.
For making money off its real estate assets, Hudson's Bay is well known for making money. Valuing the property at $3.7 billion, it secured a $1.25 billion 20-year mortgage for its Fifth Avenue flagship location in New York after buying Saks for $2.9 billion in 2013.
It will likely bring similar real estate prowess to the jewel locations owned by the retailer if Should Hudson's Bay acquire Macy's. Still it would have to compete with a flood of properties for sale, as other struggling retailers also shed properties should Hudson's Bay opt to sell some of Macy's less desirable locations.
Giving it the ability to pull off deals that many peers might struggle to do without impacting their credit rating, Hudson's Bay has traditionally financed deals through its joint ventures.
Partnerships with U.S.-based Simon Property Group Inc. and Canada's RioCan Real Estate Investment Trust exist with the company.
To fund the deal, according to the Wall Street Journal, which first reported the news, Hudson's Bay could raise equity and debt against its real estate portfolio.
Including a low price to earnings valuation of 10 times, $2.8 billion of free cash flow and a large real estate portfolio, Macy’s has attractive qualities for a buyer, Cowen and Company said in an analyst note. But the notes said that chances of a deal were dim.
Cowen said in the note that Amazon itself could be a potential buyer of the company, given its expansion into physical stores and also noted that Macy's struggling turnaround and the continued pressure it faces from Amazon make a deal unlikely.

Christopher J. Mitchell

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