Shares of Macy's Inc. retreated 2.2 percent Monday to close at $40.54 after spiking up 7 percent on buyout rumors Friday.
Traders said talks of a buyout by Kohlberg Kravis Roberts, Providence Capital and Goldman Sachs at $52 a share fueled the speculation Friday that helped bolster Macy's stock price. And while those rumblings made the rounds on Wall Street again on Monday, several banking sources didn't give the buyout talks much credence.
Christine Augustine, retail analyst at Bear Stearns, wrote in a research note Sunday that a leveraged buyout in the low $50s is "feasible," according to her LBO model, which would represent a 25 percent premium to Friday's closing price of $41.43 and a multiple of 9.7 times 2006 earnings before interest, taxes, depreciation and amortization.
"In our opinion, the current management team (many of whom lived through the [Federated] LBO in the late 1980s and the subsequent bankruptcy) would not be in favor of this type of transaction," she wrote.
Augustine added, however, that there's a chance a buyout might be tempting this time because the turnaround at former May stores has taken longer than expected and a buyout would allow the company to "execute the turnaround out of the public eye."
Macy's owns 68 percent of its real estate. About 54 percent is owned fully, both building and land, while 14 percent of the stores are owned on leased property, the analyst wrote.
While sales at legacy Macy's stores continue to outpace the former May stores, customer acceptance of merchandise and promotional changes at former May stores continues to evolve. Augustine wrote, "We believe Macy's earnings power is compelling and that the company will be able to achieve its financial goal of an EBITDA margin of 14 percent to 15 percent in the 2008-2009 time frame (or sooner.)"
Separately, shares of Tiffany & Co. surged Monday on renewed speculation that the company was the target of an acquisition. The stock gained 3.9 percent on higher-than-average trading volume.
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