David Einhorn takes stake in Macy's

Macy's Inc. has a new shareholder, and he's already talking about a potential takeover of the company. David Einhorn, the head of Greenlight Capital, sent a letter to investors on Tuesday, saying that his company took a stake in Macy's, and that the retailer is now a candidate to potentially be taken over by a private equity firm and a real estate investment trust.

A representative for neither Macy's nor Greenlight Capital was immediately available for comment on the business transaction. The amount that Greenlight Capital acquired in Macy's is still unknown. Any significant figures would be made public in a Securities and Exchange Filing, so it is possible that it could be learned within the coming months. This was a fourth quarter investment.

The total value of Macy's real estate holdings is estimated at 21 billion dollars. Macy's retail strategy has been to have both a mix of stores that are owned and leased because they believe it would maximize profitability.

An excerpt from the letter which is posted on ValueWalk's website states: “We established a position in Macy’s, the operator of about 900 Macy’s, Bloomingdale’s and Bluemercury stores, at an average price of 45.69 dollars. Earlier in 2015, with the stock at 70 dollars, an activist argued that the store real estate could be separated to unleash a valuation in excess of 125 dollar per share. Management determined whole-company REIT wouldn’t provide the required operational flexibility. Now, with the stock closing the year at 34.98 dollars, the math might make more sense. While it’s unlikely that management will reverse course on its own, it wouldn’t surprise us if a private equity firm teamed up with a REIT to buy the company and unlock the value privately.”

Greenlight Capital, founded by Einhorn in 1996, uses what is called a long/short strategy in their business approach. Currently, the company manages 4.1 billion dollars worth of investment capital.

The company has larger holdings in companies such as Apple Inc., General Motors Corp., and Time Warner Inc., while they have smaller stake in companies such as Bank of New York and Yahoo Inc. Although most of their investments are in technology, they are known to take out stake in services and consumer-cyclical arenas.

Greenlight Capital takes stake in Macy's

Greenlight is no stranger to the fashion world. An SEC filing revealed that they a stake of seven million shares in Michael Kors Inc., and 1.2 million shares in Dillard's. Both of the stakes are longterm holdings. As of September 2015, the company has positions in 47 companies.

The filing also revealed that the firm previously had 1 million shares in Macy's, but they had taken that number down to zero. It is unclear as to when those shares were acquired and when they were dumped.

Macy's stocks have declined over the past year. On Tuesday, January 19, they closed at 38 dollars and 76 cents, down 2.3 percent. Macy's low stock prices along with their impressive real estate holdings in markets like Manhattan and San Francisco has put them on investors radars.

In Q3 last year, Macy's earning declined and they lowered their outlook for FY15. In the face of people preferring smaller more intimate spaces over department stores, the retailer has been struggling.

To appeal to millennials, Macy's Inc. is now planning for outlet chains called Macy's Backstage. Manhattan's growing retail scene with a new Saks Fifth Avenue coming to Brookfield plan, along with plans for a new Nordstrom and Neiman Marcus, will also make things more competitive for Macy's in New York, specifically their Herald Square store which carries more luxury brands like Louis Vuitton, Burberry, and Gucci.

Greenlight Capital could potentially turn the company back around to an even more profitable endeavor. While Macy's is still valued at over 28 billion dollars, the 35 to 40 stores they closed in 2015 proved that they aren't turning the profit they have the ability to.