Private-equity firm in talks to buy Macy's, report says

CINCINNATI — Macy's may be finding its way out of its troubles by going private.

Rumors have been rampant for the last couple of weeks that the company may be the target of a leveraged buyout, and the stock price rose Wednesday after a report said a private-equity firm is pondering a $24 billion offer for Macy's.

Kohlberg Kravis Roberts (KKR) is studying a bid to buy Macy's for $52 a share, according to trade paper Women's Wear Daily. WWD also reported that The Principal Investment Area, Goldman Sachs Group's private-equity arm, and its real-estate group are believed to be participating in the negotiations.

Shares of Macy's soared more than 7.6 percent, or $3.06, to close at $43.09, near the high end of its 52-week per-share range of $33.52 to $46.70.

Macy's spokesman Jim Sluzewski and David Lilly, a spokesman for KKR, declined to comment on the report Wednesday.

A person close to the situation, who asked not to be named given the sensitivity of the negotiations, said Goldman Sachs was not involved in the talks.

"Macy's is in some ways a great candidate to be taken private," A.G. Edward & Sons retail-analyst Robert Buchanan said Wednesday. "They generate a lot of cash and they own a lot of real estate."

Liz Dunn, of Thomas Weisel Partners, wrote in a report published Wednesday that Macy's owns 54 percent of its real estate, roughly twice the department-store average.

Buyout rumors have driven shares up in recent weeks as Macy's struggles to reinvigorate its business. Last September, the retailer converted most of its former May Department Stores into Macy's, transforming Macy's into a national department-store brand. The turnaround of the former May stores hasn't progressed as well as expected, though.

"Any time a retailer stumbles, it becomes a bit more vulnerable to a financial event like a takeover," Buchanan said.

Andrew Wilkinson, senior market analyst at Interactive Brokers Group, said KKR may know better how to integrate the two brands.

Other analysts have noted that management may not be as open to a buyout, however, because of Campeau Corp.'s highly leveraged acquisition of Federated Department Stores in 1988 that led to its bankruptcy filing two years later. The company emerged from bankruptcy in 1992.

WWD said that it was believed that KKR would keep current Macy's management, including chairman and CEO Terry Lundgren, who orchestrated Macy's acquisition of May in 2005. Federated's name was changed to Macy's in June.

At the annual shareholders' meeting in May, Lundgren blamed the disappointing sales results, in part, on strategic changes made too quickly at the former May stores.

The retailer, which also operates Bloomingdale's, has been facing macroeconomic challenges such as a weakening home market, which has depressed its home-furnishings sales.

Macy's reported last week that sales at stores opened at least a year, considered a key indicator of a retailer's strength, fell 2.7 percent in June. Analysts surveyed by Thomson Financial expected same-store sales to fall just 0.8 percent.

The company also said earnings for the second quarter would be much lower than the year-ago period.

KKR, which filed plans to go public earlier this month, has been staking a claim in the retail market. It recently completed its $7.3 billion acquisition of the discount retail chain Dollar General. Another deal, completed this month, was the $7.1 billion purchase, along with another private-equity player Clayton, Dublier & Rice, for U.S. Foodservice, a division of Dutch supermarket-chain owner Royal Ahold.