Gordon Haskett's head of event-driven research thinks that if a Saks e-commerce IPO gets completed at $6B, Macy's will have "trouble ignoring that valuation"
Shares of Macy's (M) are on the rise on Monday following a media report that the e-commerce business of luxury retailer Saks Fifth Avenue is aiming to go public soon. An initial public offering would be the second phase of a deal struck earlier this year that separated the e-commerce business from Saks' bricks-and-mortar retail operations, which also prompted an activist investor to call for Macy's to do the same last week.
E-COMMERCE UNIT BEGINS IPO PREPARATIONS: The fast-growing e-commerce business of luxury retailer Saks Fifth Avenue is aiming to go public soon at a valuation roughly triple what it was pegged at earlier this year, The Wall Street Journal's Cara Lombardo reported on Sunday. Saks is interviewing potential underwriters this week for an initial public offering that could take place in the first half of 2022 and target a valuation of around $6 billion, the author noted, citing people familiar with the matter. It was last valued at $2 billion in March. An IPO would be the second phase of a deal struck earlier this year that separated the e-commerce business from Saks' slower-growing bricks-and-mortar retail operations, the publication added. The move, meant to help fuel the digital unit's growth, prompted an activist investor to call for Macy's to do the same last week.
The Wall Street Journal's Dana Cimilluca and Cara Lombardo reported on Thursday that Jana Partners has taken a stake in Macy's and sent a letter to the company's board urging the retailer to spin off its e-commerce business. According to people familiar with the matter, Macy's e-commerce business has already drawn interest from companies that could invest in it in conjunction with a spinoff. Jana feels that a standalone e-commerce business would be worth a multiple of Macy's current market value, which stood at about $7B on Thursday.
TROUBLE IGNORING THAT VALUATION: Following the news report that Saks is eying an IPO for its e-commerce business during the first half of next year, Gordon Haskett's head of event-driven research, Don Bilson, said that if the offering gets completed at that type of valuation, it will "shine a bright light" on Macy’s and provide Jana with added ammo as it tries to convince the retailer that it too should be monetizing its e-commerce business. In fact, "the light will be so bright that it will be hard to ignore" and that is why Macy's director nomination deadline "now looms large," Bilson contended, adding that the nominations next year should be due in mid-March ahead of a mid-May meeting.
Furthermore, Bilson noted that "it’s useful to remember that the Saks business was valued at just $2B this March" and using that number, Jana suggested two weeks ago that Macy’s e-commerce business alone would be valued at far more than the entire company is being valued today. If the Saks business is now worth three-times what Jana was assuming, it figures that its math is now much more compelling, he added. "There is obviously a long ways to go before Saks puts a number like that on the board but if that is where this headed and it happens BEFORE next year’s nomination deadline at Macy’s, you can bet that the Macy’s board will be feeling some heat to 'Saksify' itself," Bilson told.
PRICE ACTION: In Monday morning trading, shares of Macy's have jumped about 8% to $26.03. Also higher, department store peer Nordstrom's (JWN) stock has gained over 3% to $28.93.