Macy’s proxy fight is over, but the battle for the department store’s future wages on

Tony
Spring
was
already
working
against
the
clock
to
turn


Macy’s
around.

Now,
the
CEO
will
have
two
fresh
faces
on
the
department
store
retailer’s
board
of
directors
as
it
weighs
whether
to
bet
on
his
vision
or
sell
the
nearly
166-year-old
retailer
to
activist
investors.

The
board
appointments,

announced
this
week
that
put
an
end
to
a
proxy
fight
with
activist
Arkhouse
Management,
are
the
latest
development
in
a
broader,
and
so
far,
unsuccessful
effort
by
Arkhouse
and
fellow
bidder
Brigade
Capital
Management
to
acquire
the
iconic
but
struggling
American
department
store
retailer.

“It
stops
the
pressures
in
the
here
and
now,”
said
Neil
Saunders,
managing
director
of
research
firm
GlobalData.
“But
in
a
way,
you’re
letting
the
wolf
into
the
henhouse.”

Arkhouse

first
made
a
bid
in
December
to
buy
Macy’s
and
take
the
company
private
at
$21
per
share.
Macy’s

rejected
the
offer.
Arkhouse
later
launched
a

proxy
fight,
putting
forward
nine
nominees
to
Macy’s
15-person
board,
and
raised
the
bid
to
acquire
the
company.

“The
Macy’s,
Inc.
Board
is
continuing
to
engage
with
Arkhouse
and
Brigade
regarding
their
proposal
to
acquire
the
Company,”
the
company
said
in
a
statement
announcing
the
new
independent
directors.
“The
Board
is
open-minded
about
the
best
path
to
create
shareholder
value
and
is
committed
to
continuing
to
take
actions
that
it
believes
are
in
the
best
interests
of
the
Company
and
all
Macy’s,
Inc.
shareholders.”

For
Macy’s,
this
week’s

settlement
—
an
agreement
to
name
two
of
Arkhouse’s
nine
candidates
to
its
board
—
could
pause
the
distraction
and
high
costs
of
a
prolonged
campaign
for
shareholder
support.
For
Arkhouse
and
Brigade,
the
move
could
help
hand
the
keys
to
investors whose
emphasis
on
real
estate,
not
retail,
has
spurred
fears
that
their
acquisition
could
spell
the
end
of
Macy’s.

Both
Macy’s
and
Arkhouse
struck
a
conciliatory
tone
in
their
statements
this
week.
But
one
thing
is
clear:
The
battle
at
Macy’s
is
not
over.

Other
department
store
chains
have faced
challenges from
activists
in
recent
years,
and
even
when those efforts
fall
short, the
pressure can
bring
about
sweeping
changes.

With
Kohl’s,
for
example,
CEO
Michelle
Gass
left
the
company
to
lead
denim
maker


Levi
Strauss
after
a
lengthy
battle
with
Kohl’s
activists.
At
the
time,
her
predecessor
at
Levi,
Chip
Bergh,
said

activist
investors
helped
drive
her
out
of
Kohl’s
doors.

Even
before
Macy’s
had
activist
investors
breathing
down
its
neck,

Spring
faced
an
uphill
battle.

The
department
store
—
with
its
flagship
store
in
the
heart
of
New
York
City’s
Herald
Square
and
its
Macy’s
Day
parade
that
attracts
the
attention
of
millions
of
families
on
Thanksgiving
morning
—
holds
a
storied
place
in
American
retail.

But
by
nearly
every
metric,
Macy’s
has
gotten
smaller
over
the
past
decade.
Its
employee
count,
store
count
and
stock
price
have
fallen
as
the
company
has
lost
market
share
to
competitors,
including
off-price
chains
like
T.J.
Maxx,
big-box
stores
like
Target,
as
well
as
online
retailers
and
specialty
stores.

Macy’s
shares,
which
hit
a
10-year
high
of
$72.80
in
July
2015
and
sank
to
a
10-year
low
of
$4.81
in
April
2020,
closed
at
$19.30
on
Friday,
ending
the
week
with
a
market
value
of
$5.29
billion.

Macy’s

said
in
late
February
that
it
expects
net
sales
for
the
full
year
to
be
down
slightly
from
the
prior
year.
It
anticipates
comparable
sales,
which
take
out
the
impact
of
store
openings
and
closures,
to
range
from
a
decline
of
about
1.5%
to
a
gain
of
1.5%
year
over
year
on
an
owned-plus-licensed
basis
and
including
third-party
marketplace
sales.

Spring,
the
former
CEO
of
Macy’s
higher-end
Bloomingdale’s
chain
and
the
man
tasked
with
turning
the
tide,
stepped
into
the
top
role
in
early
February,
about
two
weeks
after
the
company
announced
it
would

cut
more
than
2,300
jobs
and
close
five
stores.

Spring

laid
out
his
vision
for
the
retailer
earlier
this
year,
saying
it
will
shutter
many
of
the
company’s
fledging
namesake
stores
and
invest
instead
in
stores
that
have
fared
better.
That
includes
Macy’s
locations
with
stronger
sales
as
well
as
its
two
chains
that
have
outperformed
the
namesake
brand,
higher-end
department
store
chain
Bloomingdale’s
and
beauty
chain
Bluemercury.

And
while
it
will
press
ahead
with
plans
to

open
smaller
versions
of
Macy’s
stores
in
strip
malls,
the
aggressive
plan
will
close
more
than
150
stores
by
early
2027
—
nearly
a
third
of
its
namesake
stores
—
leaving
the
retailer

with
approximately
350
Macy’s
locations.

The
store
counts
of
its
other
two
chains
are
significantly
smaller.

At
the
same
time,
the
buyout
effort
by
Arkhouse
and
Brigade
threatens
to
change
the
retailer’s
direction
entirely.

Arkhouse
and
Brigade
have
begun
conducting
due
diligence,
a
process
that
allows
the
suitors
access
to
the
department
store
operator’s
books
so
it
can
get
a
clearer
sense
of
the
company’s
finances
and
potential
liabilities.

That
in
and
of
itself
had
been
a
hard-fought
battle
with
the
bidders,
who
wanted
more
information
to
secure
funding
commitments
for
the
proposed
acquisition.
Arkhouse
claims
Macy’s
refused
to
engage
with
it,
and
Macy’s
rebuffed
Arkhouse
saying
it
didn’t
have
the
financing
for
the
takeover
it
proposed.

GlobalData’s
Saunders
said
Macy’s
future
as
a
retailer
could
be
at
risk
if
Arkhouse
succeeds
in
its
efforts
to
take
the
company
private.
He
said
the
activist
investor
has
a
background
in
real
estate,
not
retail,
and
seems
more
keen
on
sucking
the
value
out
of
Macy’s
prime
mall
and
flagship
locations
than
investing
in
its
business.

“It’ll
become
a
situation
much
like
Sears,”
he
said.
“A
very
long
liquidation,
in
effect.”

Arkhouse,
for
its
part,
has
said
it
plans
to
keep
Macy’s
stores
open.
In
an
interview
with
CNBC
in
March,
managing
partner
Gavriel
Kahane said
the
activist
investor
wants
to
run
Macy’s
as
a
retailer,
along
with
getting
value
out
of
its
real
estate.

“Our
plan
is
not
conditioned
on
store
closures.
It
is
not
a
part,
fundamentally,
of
our
business
plan
at
all,”
he
said.
“In
fact,
we
think
the
real
estate
is
so
valuable,
in
large
part,
because
it’s
occupied
by
Macy’s.”

Kahane
said
the
activist
investor
wants
Macy’s
to
become
“a
stable
and
growing
company
that
can
live
for
decades,
and
potentially
another
150
years.”

But,
he
argued,
a
private
company
is
better
able
to
achieve
that
goal
than
a
publicly
traded
one:
“We
think
that
needs
to
happen
behind
the
curtain,
away
from
the
public
markets.
We
think
that
current
management
has
really
been
largely
solving
for
the
quarter
and
when
you’re
so
focused
on
sort
of
that
near-term
execution,
it’s
really
almost
impossible
to
ensure
your
long-term
viability.”

Arkhouse raised
its
bid
last
month
to
$24
per
share
and said
it
had
the
backing
of Fortress
Investment
Group
and
One
Investment
Management.

Saunders
noted
the
proxy
settlement
could
buy
the
retailer
time
to
carry
out
Spring’s
turnaround
strategy
and
try
to
drive
up
the
value
of
the
company.

The
two
new
directors
who
will
join
the
Macy’s
board
will
bring
a
deep
background
in
retail
and
real
estate.
Richard
Clark
spent
nearly
four
decades
in
the
real
estate
industry
and
was
former
chairman
and
CEO
of
Brookfield
Property
Group,
Brookfield
Property
Partners
and
Brookfield
Office
Properties.
The
second
director,
Richard
Markee,
was
former
CEO
of
Vitamin
Shoppe
and
held
senior
roles
at
Toys
R
Us
and
Babies
R
Us.
He
currently
sits
on
the
board
of
discount
retailer Five
Below.

While
the
two
directors
are
independent,
with
no
affiliation
to
either
Arkhouse
or
Brigade,
they’ll
join
the
board’s
seven-person
finance
committee,
tasked
with
evaluating
and
making
recommendations
about
the
acquisition
bid
and
any
other
similar
offers.

Arkhouse
managing
partners
Kahane
and
Jonathon
Blackwell
said
in
a
statement
this
week
that
the
appointments
of
the
two
new
directors
“will
ensure
that
our
discussions
continue
to
be
constructive
and
that
our
proposal
is
treated
seriously
and
expeditiously.”

For
Macy’s,
agreeing
to
two
new
directors
won’t
tip
the
balance
on
the
board.
That
could
be
seen
as
a
victory
for
the
retailer,
since
it’s
a
far
cry
from
the
total
number
proposed
by
Arkhouse,
said
Patrick
Gadson,
an
attorney
and
co-head
of
the
shareholder
activism
practice
at
Vinson
&
Elkins.

Still,
the
settlement
allows
Arkhouse
to
press
ahead
as
a
critical
and
persistent
activist
investor,
said
Gadson,
who
represented
Preferred
Apartment
Communities,
a
real
estate
investment
trust
that
Arkhouse
similarly
targeted
and
made
a
bid
to
acquire.
Arkhouse
was
ultimately
outbid
by
another
buyer
in
that
effort.

The
Macy’s
agreement
is
missing
a
non-disparagement
clause,
he
said,
and
has
“thin”
standstill
restrictions,
or
terms
that
can
temporarily
halt
activist
activity
and
muzzle
the
activist
from
making
critical
comments.
That
means
Arkhouse
and
Brigade
could
still
have
room
to
run
in
their
campaign.

“Shareholder
activism
is
a
performance-based
skill
set,”
Gadson
said.
“If
the
company
performs
well,
exceeds
expectations
markedly,
then
in
all
likelihood
the
performance
itself
would
be
the
remedy.
If
the
company
fails
to
do
that,
then
they
can
do
all
of
the
governance
changes
and
all
of
the
nonfundamental,
nonoperational
gymnastics
they’d
like,
none
of
it
will
save
them.”

Correction:
This
story
has
been
updated
to
correct
the
timing
and
nature
of
Macy’s
responses
to
take-private
bids
by
Arkhouse
and
Brigade.