This compares to around $24 currently and a market capitalisation of $7 billion. Given that an independent valuation by Starboard Capital has placed a price tag of $21 billion on the real estate portfolio alone, then Amazon should be offering close to $70 a share – where the stock price was around three years ago.
A lightning deal?
Therefore we are looking at a situation which even as it stands should get investors excited as far as Macy’s is concerned, with or without what is clearly an opportunistic offer turned down.
Clearly, Amazon is quite an expert in ‘lightning deals’ (just look at the recent Whole Foods purchase) and is having a go at snapping up a bargain.
However, there are other aspects to note. Very often in an M&A situation, those who get involved can be left high and dry if the rumour – and $38 a share from Amazon is merely that – proves to be unfounded. But in this case, we have the cushion of a dividend yield on Macy’s of 6% plus, and a charting setup, which appears to be something of a coiled spring for the bulls.
What can be seen on Macy’s share price is the way that the stock falls within a triangle formation which has its resistance line level with the 50 day moving average. A break of the 50 day line as soon as today at $24 could lead to quite a sharp spike for the shares to the 200 day moving average at $32.
This is a stock which can gap up and down quite significantly. Therefore, if $24 is broken we could see a coiled spring type effect, possibly off the back of Amazon takeover rumours.
To conclude it would appear that you do not have to be Jeff Bezos or even Warren Buffett to realise that Macy’s is a great real estate company, undermined by its retailing sideline, at least in valuation terms.
But given the bargain basement price currently, value investors and M&A speculators are likely to be sniffing around here at this sitting duck very soon. Private equity and Chinese investors, with their new love for retail are likely to enter the fray. This is particularly given the way that private equity love assets like Macy’s has, and have raised billions for this purpose; China has government-backed banks who support such deals.
Hidden in plain sight
On another topic, speaking to people in Oil & Gas, I am told that the best place to find oil is where it has been found before. This point was underlined in the world of M&A over the past week, with Nordic payments company Nets A/S receiving a takeover approach.
It was surprising that after Nets there was not commentary in the media regarding the payments sector, and how it could be ripe for consolidation.
This was particularly so given the way that just the day before the approach on Worldpay on July 4th, there was a surge in trading volume to 9.5m shares. My theory is that many analysts and commentators do not really understand this relatively new and “techie” space.
Amazon moves on quickly from Whole Foods
This point of a lack of commentary and analytical depth is also reflected in the aftermath of the Amazon deal to buy Whole Foods. They really did not see the purchase of the company affectionately known as ‘Whole Paycheck’, largely because the pairing appeared to be as logical as chalk and cheese.
What they missed out on is that Amazon’s supply chain, as well as its massively efficient corporate infrastructure which means that it could massively improve margins for Whole Foods, as well as bringing top notch groceries ‘in-house’.
But getting back to the oil industry anecdote, it would appear that Whole Foods is just the start of Amazon’s campaign to turn itself into the world’s leading retailer. And apparently, it does not matter if its online or in Main Street.
Zak Mir is editor at Wallstreetwires.com and author of 101 Charts For Trading Success and 49 Golden Rules of Technical Analysis. He is generally acknowledged as being one of the most experienced independent technical analysts in the UK.