What happened
Shares of department store chain Macy's (M -2.12%) rose as much as 16.5% on Jan. 24 even as the broader market crumbled. Joining Macy's ascent were peers Nordstrom (JWN -6.77%) and Dillard's (DDS -2.06%), which were up 12.5% and 18.5%, respectively, at their peaks. As of roughly 3 p.m. ET, Macy's was still higher by 15% or so, with Nordstrom holding on to a 9.5% advance and Dillard's notching a 10% gain.
Image source: Getty Images.
There was no particular news out of these three retailers, but there was some news out of Kohl's (KSS -2.20%), and it appears to have gotten investors excited about the department store sector despite the particularly bearish tone of trading today.
So what
Kohl's has been facing complaints from activist investors in recent days. The basic story is that some shareholders don't think the management team is taking the right steps to increase shareholder value quickly enough. However, over the weekend, the retailer was reported to have received not one, but two acquisition offers from a pair of private equity players. Although an offer backed by hedge fund Starboard Value is rumored to be $9 billion, the subsequent offer from Sycamore Partners hasn't had a price leaked just yet. Still, if this is turning into a bidding war, the logical expectation is a higher offer. Kohl's stock rose sharply on the news, advancing as much as 36% in early trading.
That move higher apparently got Wall Street thinking about other retailers that might end up as targets. Macy's has been working on a business turnaround for years as it has tried to find a balance between physical stores and online sales. The company's nearly $8 billion market cap is fairly close to the rumored offer from Starboard Value. Nordstrom makes for an interesting story since that the company's founding family has, in the not-too-distant past, tried to take it private. That effort failed, but given that Kohl's appears to be in play, it wouldn't be much of a stretch to think that Nordstrom privatization rumors could get started again. Nordstrom's market cap is a relatively tiny $3.5 billion. Nearly $5 billion market cap Dillard's has been a relative standout over the past year, with a stock advance of more than 200%. Given the rumored $9 billion offer for Kohl's, smaller Dillard's seems like a possible target, but its revenue trends have been relatively strong over the past year, and it might be hard to convince management and shareholders to go along without offering a hefty premium.
The big takeaway from all of this, however, is that activist investors and buyout offers are one-offs that are virtually impossible to predict. So Macy's, Nordstrom, and Dillard's are all potential takeover names, but until there's actually an offer on the table, betting that there might be one is pure speculation.
Now what
Wall Street has a habit of taking one piece of news and running with it as it looks for more ways to potentially make money off of the same trend or idea. That's likely what's going on here. While it's nice to see some green on a day that's otherwise been brutally filled with red, investors shouldn't get too caught up in the takeover possibilities at this trio of retailers -- there's no way to know which retailer, if any, might be next.
