(Bloomberg) -- The potential acquirers of Macy’s Inc. probably aren’t interested in trying to arrest the storied department-store operator’s decadeslong decline. Instead, analysts say the investors are likely eager to buy its real estate assets and potentially spin off its higher-end Bloomingdale’s and Bluemercury chains.

“There’s way easier places to make money than buying a midtier department store,” said Joel Bines, the former head of Alix Partners’ global retail practice who now advises retail companies’ boards. “Why would you want the brain damage of trying to make money in this space?”

Arkhouse Management and Brigade Capital Management have offered $21 a share to take the department store operator private, Bloomberg News has reported, citing people with knowledge of the matter. The potential buyers are likely interested in selling at least some of Macy’s real estate assets, Bines and other analysts said, as well as the upscale Bloomingdale’s, which has reported year-over-year sales declines that have been less steep than those at the mass-market Macy’s chain.

Another spinoff target could be Macy’s Bluemercury beauty business, which it bought in 2015. The chain has reported year-over-year revenue growth in recent quarters as sales of beauty products have remained resilient in the US.

Representatives of Macy’s, Arkhouse and Brigade declined to comment.

If the two investors were able to improve the fortunes of Macy’s, then that would be additional profit for them. “And if there’s no turnaround, it’s still a good deal for them,” Bines said.

Asset Valuations

Bloomberg Intelligence analyst Mary Ross Gilbert estimates that Macy’s real estate assets in the US, including its flagship in Manhattan’s Herald Square, could be worth $8 billion. Arkhouse and Brigade Capital’s offer values Macy’s around $8.5 billion, including debt, which shows they might not assign much value to the retail holdings. She values the Herald Square store alone at $2 billion, noting that the valuation “might be low given a major development underway that includes a new office tower.” 

Macy’s potential exit from some of its real estate holdings could be an outright sale of stores or a sale-and-leaseback plan, in which the buyers would structure the business so that Macy’s would rent the buildings it had previously owned.

“As a going concern, Macy’s is not that interesting,” said Milton Pedraza, head of the Luxury Institute, a consulting firm. “As a real estate play, it is.”

Under Chief Executive Officer Jeff Gennette, Macy’s already sold off some of its real estate assets between 2015 to 2016, noted Citi analyst Paul Lejuez, including stores in Brooklyn for $270 million, San Francisco for $270 million and Minneapolis for $59 million. The department-store chain operates around 600 stores, of which it owns about half. “As a private company, management might be more willing to make the decision to close additional locations,” Lejuez wrote in a research note.

The potential acquirers would still need to line up financing, a hurdle given that the cost of debt has risen. Attempts at takeovers in recent years, including of Kohl’s Corp. and Nordstrom Inc., have failed, an indication of the uphill battle facing Macy’s suitors. “But we believe this instance has the potential to be more credible if financing is indeed lined up,” TD Cowen analyst Oliver Chen wrote in a research report. 

He pointed out that the Wall Street Journal, which first reported the news, said the investor group was willing to raise its offer and that an investment bank has provided a letter of support to raise funding.

--With assistance from Olivia Rockeman.

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