Goldman Not in Macy's Hunt - TheStreet

Goldman Not in Macy's Hunt

A source says the bank isn't involved with an LBO for the department-store giant.
Publish date:

Updated from 1:44 p.m. EDT

Goldman Sachs

(GS) - Get Report

isn't involved in any potential takeover of


(M) - Get Report

, according to a source familiar with the investment bank's plans.

Shares of Macy's soared as much as 14% Wednesday following a report from

Women's Wear Daily

that private-equity firm Kohlberg Kravis Roberts is working with Goldman Sachs' private-equity and real estate arms to buy the department-store giant in a $24 billion deal.

Goldman, however, isn't working on any sort of leveraged buyout for Macy's, a source says.

According to


, which cited private-equity sources, KKR is eyeing a $52-a-share bid, which would be 30% premium to the retailer's Tuesday closing price. The stock recently was trading up $3.27, or 8.2%, to $43.30.

Macy's stock and options have been trading actively in recent weeks as buyout rumors swirl around the company, which has been struggling to incorporate stores acquired with its 2005 purchase of May Department Stores. Earlier this month, Macy's reported a 2.7% drop in June same-store sales, or sales at stores open at least a year. It also trimmed earnings estimates.

KKR, Macy's and Goldman all declined to comment on the



The chances for the mammoth deal to occur has been up for debate on Wall Street. Deborah Weinswig, an analyst with Citigroup, wrote in a recent research note that a leveraged buyout is possible but not probable given the department store chain's history.

"We believe Macy's management team would be strongly opposed to a buyout due to the company's experience with real estate developer Robert Campeau's (Campeau Corporation) highly levered acquisition of Federated in 1988, which resulted in the company filing for bankruptcy in 1990," Weinswig wrote.

Federated emerged from bankruptcy in 1992; two years later, it acquired Macy's. In August of 2005, the company completed an $11 billion acquisition of May Department Stores and began the process of converting 400 of the regionally branded stores into Macy's. Since then, the company has had trouble keeping customers who were loyal to old May brands such as Filene's, Hecht's and Marshall Field's.

Weinswig noted that there may be some rationale behind a buyout. For one, the incorporation of May has not progressed as planned. "Gaining traction with customers may take time," she wrote.

She also pointed out that Macy's strong cash flow and real estate portfolio make it an attractive candidate for a buyout. The company owns 54% of its real estate.

Nonetheless, Weinswig wrote that "while there are a few reasons why an LBO might make sense for Macy's especially given the slow progress of the May turnaround, we believe Macy's past LBO experience makes a transaction unlikely."

For KKR's part, a buyout of Macy's would come as the storied firm prepares to go public. The company earlier this month said it will follow rival

Blackstone Group

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into the public markets.