Why Macy's Stock Jumped Nearly 10% on Friday

The acquisition saga continues, but it can’t go on forever.

Shares of department store chain Macy’s (M 9.54%) rallied 9.5% on Friday, lifted by reports that a pair of suitors is raising their collective offer to acquire the struggling company. Although Macy’s itself has neither confirmed nor denied the report, in March it did confirm the receipt of a previous offer from the same consortium at a lower per-share price. The timing of the Independence Day holiday could be preventing the company’s management from making a timely response.

Not this team’s first offer for Macy’s

The Wall Street Journal is largely responsible for today’s surge, reporting after Wednesday’s close that investment management companies Arkhouse Management and Brigade Capital Management are upping their joint bid to buy Macy’s at $24.80 per share. The most recently reported bid is roughly 25% above the stock’s present price, valuing the retailer at about $6.8 billion.

Macy’s has not publicly responded to the news. But the Journal‘s report is credible in light of the history here. Last year’s $5.8 billion bid from the same duo was rejected, as was March’s effort to purchase all Macy’s shares at $24 apiece. Then in April the department store chain added two new directors hand-picked by the activist investment management outfits. These two board members are now leading a committee exploring a sale of the retailer that would privatize the retailer.

It just might be in shareholders’ best interest to take this latest offer, too. Although Macy’s new CEO Tony Spring’s vision for the store chain’s future is compelling, it may also ultimately be unworkable. The world’s consumers have largely moved on from yesteryear’s preferred means of shopping. There may be no salvaging its business from here.

In this vein, the few analysts still keeping tabs on Macy’s collectively expect revenue to shrink again this year as well as next.

As good as it gets?

Friday’s development and the stock’s response presents a conundrum for interested investors.

Even as aggressively as Brigade and Arkhouse are upping their bid, there’s a reason the stock’s still priced well below the latest reported offer of $24.80 per share. That reason is the belief that the department store’s management isn’t interested in selling the company at any price even though such a deal may be the only graceful exit from public markets for the company and its investors.

Bottom line? There’s certainly not enough upside for newcomers to step into a stake in Macy’s here. Even for current shareholders holding out for a higher exit price, however, this may be the proverbial — and literal — final offer. Friday’s surge makes for at least a respectable exit point. Acting on the opportunity would also simultaneously take a great deal of unnecessary risk off of current shareholders’ plates.

James Brumley has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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