Macy’s on Sunday announced that its board of directors rejected a $5.8 billion takeover offer from Arkhouse Management and Brigade Capital Management. The deal in the unsolicited offer would have taken the retailer private amid recent business struggles.

Why the Macy’s Arkhouse offer was rejected

“Following careful consideration and efforts to gather additional information from Arkhouse and Brigade, the Board determined that Arkhouse and Brigade’s proposal is not actionable and that it fails to provide compelling value to Macy’s, Inc. shareholders,” said Jeff Gennette, chairman and chief executive officer of Macy’s, Inc., in a released statement. “We continue to be open to opportunities that are in the best interests of the Company and all of our shareholders.”

Macy’s board released the full text of the letter that Gennette sent to Arkhouse and Brigade. Specifically, Gennette cited “serious reservations” about the parties’ “ability to finance” the deal proposed in the Macy’s Arkhouse offer.

Doubts about Arkhouse’s ability to finance

“For example, the Board has been advised that your proposed cash equity contribution of only 25% of the required capital is well below current market levels for similar transactions, and consequently, your proposed overall leverage is well in excess of what could likely be achieved in today’s marketplace and sustainable for a company in our sector,” Gennette stated in the letter from Macy’s board. “Based upon advice the Board has received, we believe that this quantum of indebtedness, as well as your reliance on a large amount of payment-in-kind securities, make it highly unlikely that your proposed financing structure could be successfully executed.”

Under the terms submitted on Dec. 1, Arkhouse sought to acquire Macy’s at $21 per share. Arkhouse and Brigade “collectively have a significant stake in Macy’s through Arkhouse-managed funds,” according to Arkhouse’s public statement. That release attributed comments to Arkhouse managing partners Gavriel Kahane and Jonathon Blackwell. In their statement, also published Sunday, the partners left the possibility open for a larger offer to follow.

“We see the potential for a meaningful increase to our original proposal if we are granted access to the necessary due diligence and, to that end, have offered to sign a mutual non-disclosure agreement to conduct this due diligence,” said Kahane and Blackwell. “We have conviction in the long-term success of Macy’s but believe that its potential will only be realized as a private company.”

Gennette, meanwhile, closed his signaling that the board could still entertain new proposals. He said they are “open to opportunities” deemed to be “in the best interests of Macy’s” and its shareholders.

Macy’s layoffs and store closures

The public exchange about the Macy’s Arkhouse offer followed news on Friday that Macy’s would lay off 3.5% of its workforce and close five of its stores.

Macy’s ranks No. 17 in the 2023 Digital Commerce 360 Top 1000. The Top 1000 is a ranking of North America’s leading retailers by online sales.

Despite better-than-expected results in its most recent quarterly earnings, the New York-based company faces continuing challenges. Its net sales for the third quarter in 2023 hit $5 billion. That was down 7% from the same quarter a year earlier.

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