Tony Spring was already working against the clock. Messi around

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

The board appointments announced this week ended a proxy fight with activist Arkhouse Management, the latest development in a broader, and so far, bid by Arkhouse and fellow bidder Brigade Capital Management. An unsuccessful attempt to acquire the famous but struggling US department. store retailer.

“It takes the stress out of the here and now,” said Neil Sanders, managing director of research firm Global Data. “But in a way, you’re letting the wolf into the hen house.”

Archhouse first bid to buy Macy’s in December, taking the company private for $21 a share. Messi turned down the offer. Arkhouse later launched a proxy fight, presenting nine nominees to Macy’s 15-person board, and increased its bid to acquire the company.

“The Macy’s Inc. board continues to have discussions with Archhouse and Brigade regarding its proposal to acquire the company,” the company said in a statement announcing the new independent directors. “The board has an open mind about the best path to create shareholder value and is committed to taking actions that it believes are in the best interests of the company and all Macy’s Inc. shareholders.”

For Massey, this week’s settlement — an agreement to name two of Arkhouse’s nine candidates to its board — could prevent the distraction and high costs of a long campaign for shareholder support. For Archhouse and Brigade, the move could help hand the keys to investors whose focus on real estate, not retail, has fueled fears that their acquisition could end Macy’s. Is.

Both Massey and Arkhouse took a conciliatory tone in their statements this week. But one thing is clear: Messi’s fight is not over.

Other department store chains have faced challenges from workers in recent years, and even when those efforts subside, the pressure can lead to big changes.

For example, with Kohl’s, CEO Michel Gass left the company to lead a denim maker. Levi Strauss After a long fight with Kohl’s workers. At the time, his predecessor at Levy, Chip Berg, said activist investors helped him get Kohl’s out the door.

Even before Macy’s activist investors were breathing down their necks, 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 millions of families on Thanksgiving morning—holds a storied place in American retail.

But by almost every metric, Messi has gotten smaller over the past decade. Its headcount, store count and stock price have declined as the company has lost market share to competitors, including off-price chains like TJ Maxx, big box stores like Target, as well as online retailers and specialty stores. Stores included.

Shares of Macy’s, 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 its market The value was $5.29 billion.

Macy’s said in late February that it expected net sales for the full year to be slightly lower than last year. It expects comparable sales, including the impact of store openings and closings, to decrease approximately 1.5% on a licensed-plus-owned basis to a gain of 1.5% year-over-year and third-party marketplace sales. Expected including

Spring, the former CEO of Macy’s upscale 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 that he It will cut more than 2,300 jobs and close five stores.

Spring outlined his vision for the retailer earlier this year, saying it would close many of the company’s newly branded stores and instead invest in stores that have performed well. . That includes Macy’s locations with strong sales, as well as two of its chains that have overtaken name brands, upscale department store chain Bloomingdale’s and beauty chain BlueMercury.

And while it will move forward 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 — about a third of its namesake stores — out of about 350 Macy’s. Excluding retailers with locations.

Its other two chains have significantly smaller store counts.

At the same time, acquisition efforts by Arkhouse and Brigade threaten to completely change the direction of the retailer.

Archhouse and Brigade began conducting due diligence, a process that allows the suitors access to the department store operator’s books to get a clearer picture of the company’s finances and potential liabilities. .

It was an uphill battle with bidders themselves, who wanted more information to secure funding commitments for the proposed acquisition. Archhouse claims that Macy’s refused to engage with it, and Macy’s rejected Archhouse’s claim that it did not have the financing for the proposed takeover.

Saunders of Global Data said Macy’s future as a retailer could be in jeopardy if Archhouse succeeds in its efforts to take the company private. The activist investor has a background in real estate, not retail, and is more interested in undercutting the value of Macy’s Prime Mall and flagship locations than investing in its own business, he said.

“It’s going to become a Sears-like situation,” 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 Gavril Kahane said the activist investor wants to operate Macy’s as a retailer, while also getting value from its real estate.

“Our plan is not contingent on store closures. It’s not fundamentally part of our business plan,” he said. “In fact, we think the real estate is very valuable, in large part, because Macy’s occupies it.”

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

But, he argued, a private company is better able to achieve that goal than a publicly traded one: “We think it needs to be behind the scenes, away from the public markets. . Quarterly and when you focus on such near-term execution, it’s really almost impossible to ensure your long-term viability.”

Arkhouse raised its bid to $24 a share last month and said it was backed by Fortress Investment Group and One Investment Management.

Saunders noted that the proxy settlement could buy the retailer time to pursue a spring turnaround strategy and try to increase the company’s value.

The two new directors joining Macy’s board will bring deep backgrounds in retail and real estate. Richard Clark spent nearly four decades in the real estate industry and was the former Chairman and CEO of Brookfield Property Group, Brookfield Property Partners and Brookfield Office Properties. The other director, Richard Markey, was the 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 both directors are independent, with no affiliation to Arkhouse or Brigade, they will sit on the board’s seven-member finance committee, which will review and make recommendations on acquisition bids and any other similar offers. The task has been assigned.

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

For Messi, agreeing to two new directors will not add balance to the board. That could be seen as a victory for the retailer, as it’s a far cry from the total number suggested by Arkhouse, said Patrick Gadson, a lawyer and co-head of the shareholder activism practice at Vinson & Elkins.

Still, the settlement allows Archhouse to continue as a significant and consistent activist investor, said Gadson, who represented Preferred Apartment Communities, a real estate investment trust that Archhouse similarly targeted. And bid to get it. Archhouse was eventually outbid by another buyer in the effort.

He said Macy’s contract did not contain a non-disparagement clause, and contained “thin” disqualification restrictions, or terms that could temporarily stop a worker’s activity and prevent the worker from making critical comments. can stop This means that Arkhouse and Brigade still have room to run their campaigns.

“Shareholder activism is a performance-based skill set,” Gadson said. “If the company performs well, clearly exceeding expectations, then performance will in all likelihood be the cure itself.” If the company fails to do that, it can do all the governance changes and all the non-fundamental, non-operational gymnastics. “None of that will save them.”

Correction: This story has been updated to correct the timing and nature of Macy’s responses to the private bids from Archhouse and Brigade.