We established a position in Macy’s (M), the operator of about 900 Macy’s, Bloomingdale’sand Bluemercury stores, at an average price of $45.69. Earlier in 2015, with the stock at $70,an activist argued that the store real estate could be separated to unleash a valuation in excessof $125 per share. Management determined a whole-company REIT wouldn’t provide therequired operational flexibility.
Now, with the stock closing the year at $34.98, the math might make more sense. While it’sunlikely that management will reverse course on its own, it wouldn’t surprise us if a privateequity firm teamed up with a REIT to buy the company and unlock the value privately.
Even if this doesn’t happen, the shares are cheap at 5x EBITDA, 7x equity free cash flow, andless than 9x 2015 EPS, with a healthy balance sheet and strong history of sharerepurchases. We think a portion of the recent sales weakness was driven by unseasonablywarm weather and a strong dollar impacting tourist business, which should set up forfavorable comparisons in 2016.
From David Einhorn (Trades, Portfolio)'s Green Light Capital fourth quarter 2015 shareholder letter.
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