May Department Stores May Sell a 50% Interest in Its Shopping Centers
May Department Stores said Sunday that it is discussing selling a 50% interest in its valuable shopping center holdings with several unnamed real estate developers. The long-rumored move, analysts said, is designed to discourage a potential hostile takeover.
The St. Louis-based retailer said the transaction under discussion would involve forming “a 50/50 general partnership with an experienced developer who would be responsible for management and development of the centers.”
By putting its shopping centers into such a partnership, May, in effect, makes the properties harder for prospective acquirers to obtain, analysts said. May is viewed as the last giant department store operator considered vulnerable to a hostile takeover, and the shopping centers--valued by one analyst at about $600 million--are seen as the primary prize.
“This is a roundabout way to keep the stock price up and keep the wolves at bay,” said Robert F. Buchanan, senior retailing analyst at A. G. Edwards & Sons Inc. in St. Louis. “This is an effort by May to establish a separate value for its real estate holdings. By establishing that value, the stock price should increase and May should be less vulnerable to a takeover.”
He estimates that May, the nation’s seventh-largest retailer, is worth between $48 and $51 per share. May stock jumped $2.125 to close at $38 a share Friday on New York Stock Exchange trading, amid rumors that it was about to announce a restructuring plan.
Forming a partnership with an experienced real estate developer also could give May additional cash and help it get greater use out of its shopping centers, said Sarah A. Stack, retail analyst at Bateman Eichler, Hill Richards in Los Angeles. Developers in recent years have gained greater control over shaping the image of properties, she said.
Several other major retailers, such as R. H. Macy & Co. and Federated Department Stores, have struck partnership arrangements with developers to manage their real estate holdings.
May currently wholly owns and operates five shopping centers nationwide--including the Eastland Center and Eagle Rock Plaza in Los Angeles--and has partnership interests in 23 others, including three in Los Angeles and six in San Diego. Analyst Buchanan estimated their value at approximately $600 million.
May spokesman James Abrams refused to place a value on the holdings or name the developers in partnership discussions. But analyst Buchanan said it could be any of several larger developers who have experience managing retail properties. They include Taubman Co., Edward J. DeBartolo Corp., Melvin Simon & Associates and the Homart Development unit of Sears, Roebuck.
The shopping center partnership also could make May less vulnerable to a takeover in another way. Under details of a possible partnership, May said Sunday that it would have the option of requiring the partnership to use its cash to buy May common stock that the retailer purchased in the open market. While May said such stock would be non-voting, the shares would nonetheless be out of the grasp of a potential suitor, analysts said.
The company estimated that if the partnership used all available cash to purchase May stock, the partnership would own less than 10% of May’s outstanding common stock.
May’s statement Sunday also included an announcement aimed at squelching recent rumors that May was considering additional asset sales to make itself even less attractive to hostile suitors, analysts said.
May said it will continue to operate each of its current department store, discount and specialty business segments “and that no discussions are being held with respect to the divestiture of any of these businesses.” Previously announced sales of its May Florida and Loehmann’s department store units are currently pending.
