(Bloomberg)—Hudson’s Bay Co. is in early stage talks with Macy’s Inc. about a possible takeover of the struggling department-store chain, according to a person familiar with the matter.

Discussions are preliminary, and a full takeover may not be the only option on the table, the person said, asking not to be identified as the details aren’t public.

A takeover of Macy’s, No. 6 in the Internet Retailer 2016 Top 500 Guide, may placate activist investor Starboard Value LP, which has been pushing the retailer to wring more money from its real estate holdings and consider forming a REIT. For Hudson’s Bay (No. 75), a deal could give its portfolio another marquee name alongside Saks Fifth Avenue and Lord & Taylor, as well as provide it with high-quality real estate in the U.S., including its flagship store at New York’s Herald Square.

“Retail isn’t dead, it’s just too big,” says Poonam Goyal, an analyst at Bloomberg Intelligence. “If you can pay the right price and get a good company with good brand equity and good brands—in midtier retailing, Macy’s is the best of them.”

Macy’s shares rose the most in almost six months Friday after the Wall Street Journal reported that Hudson’s Bay made an approach, citing people it didn’t name. The stock surged as much as 12% to $34.37 in New York, the biggest intraday gain since Aug. 11. It had been down 25% in the 12 months through Thursday. Hudson’s Bay climbed as much as 6.2% to C$10.62 in Toronto.

Hudson’s Bay CEO Jerry Storch and representatives for Macy’s declined to comment when contacted by Bloomberg.

New CEO

The talks come as Macy’s president Jeff Gennette prepares to take over as chief executive from longtime leader Terry Lundgren. He’s taking the reins at a time when Macy’s and other department-store chains are in turmoil because of dwindling mall traffic and shoppers’ continued migration online. The Cincinnati-based company cut its annual forecast in January following a weak holiday sales season.

Richard Baker, the chairman of Canada’s oldest retailer, has focused on turning merchants into real estate vehicles. Hudson’s Bay purchased Saks Inc. in 2013 and agreed to buy Metro AG’s Galeria Kaufhof stores for 2.83 billion euros ($3.2 billion) just two years later. The Canadian firm formed two joint ventures with Simon Property Group Inc. and RioCan Real Estate Investment Trust in 2015 valued at about C$2 billion.

Quality malls

Macy’s only has about 730 stores in its portfolio, about half of which are in the best malls. The retailer also sells national brands that Hudson’s Bay might want access to for its own Canadian stores, Goyal said.

“If you think of Hudson’s Bay, it’s a retailer, but it’s also an underlying REIT, and Macy’s has plenty of real estate opportunities,” Goyal said.

If a deal occurs, Hudson’s Bay may fold Macy’s assets, worth about C$26 billion ($20 billion), into HBS Global Properties, its joint venture with Simon, said Steven Salz, an analyst at M Capital Partners Inc. That would appease investors who are looking for a vehicle with a more diversified tenant base. At the time of the joint-venture announcement, Baker said he was seeking to “fatten up” the portfolio before an IPO. The most likely structure is a private real estate investment trust, or an UPREIT, he said.

The portfolio’s total assets would be worth about C$37 billion, and would be leveraged at about 50% loan-to-value, giving the company an ultimate equity value of about C$18 billion, Salz said.

Closing stores

Macy’s, which has a market cap about seven times the size of Hudson’s Bay’s, has been struggling to grow sales as consumers skip trips to the mall and shift spending toward e-commerce and more specialized retailers. To cope, the company is working to rein in its sprawling operations. In January, it announced plans to slash 6,200 jobs. It previously said it would close 100 underperforming locations, with 68 of those shutting down this year. That move will eliminate about 4,000 additional jobs.

The cost cutting should generate annual savings of $550 million, beginning in 2017, Macy’s said. That’s higher than a previous goal of $500 million announced in 2015. The idea is to pump the savings into its e-commerce business, Chinese operations and other units, such as its Bluemercury makeup division.

Bonds sold by Macy’s were the biggest gainers in the debt market at 11:16 a.m. on Friday. The company’s $750 million of 10-year notes due in 2023 gained 2 cents to 95.75 cents on the dollar, their biggest jump since March, according to Trace, the bond price reporting system of the Financial Industry Regulatory Authority.

One benefit of combining Macy’s and Hudson’s Bay would be the opportunity to close a large number of stores, especially in the U.S., which is widely considered to have too many, Salz says.

“It’s a bit of a new normal now,” he says. “This helps consolidate retail generally. The industry can use something like this.”

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