Problems that Macy's Inc. faces converting former May stores make a potential buyout risky, a Morgan Stanley analyst said Thursday.
Shares of Macy's rallied on Wednesday on speculation that private equity firm Kohlberg Kravis Roberts & Co. may bid $24 billion, or 52 per share, for the Cincinnati-based retailer. A Macy's spokesman declined to comment.
It wasn't the first time Macy's shares climbed on buyout rumors. Speculation that Macy's may go private has swirled in recent weeks, as the company struggles to convert former May Department Store Co. locations to Macy's.
Last year, Federated began converting at least 400 former May stores, including Marshall Field's to Macy's, to create a national brand.
Analyst Michelle L. Clark said the conversion carries material risk, given fundamental weakness at the former May stores.
"We continue to believe the issues at the converted May Co. locations are structural in nature and could take longer than two to three years to fix," Clark wrote in a client note.
Clark said shares may slide back to around $38, if a buyout isn't announced in the near future.
Macy's shares rose nearly 8 percent Wednesday, finishing at $43.09.
source:chron.com
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