For weeks now, R.H. Macy & Co., the financially distressed retailer, has told people that it is raising $250 million of new money from its stockholders. But Macy's has yet to receive a penny of the promised funds, and it isn't clear when the money will actually appear. If you made a drama out of this, you would have to call it "Waiting for the Dough."
Hopefully, Macy's money will show up before Godot -- who, as you may recall, was due at any moment, but never did put in an appearance.
Macy's, to its credit -- no pun intended -- has managed to get amazing mileage just by telling the world that its shareholders, which include some of America's richest and smartest investors, were riding to the rescue. The announcements that GE Capital Corp. will buy Macy's credit subsidiary for $100 million, and that GE Capital and other Macy's stockholders will fork over $100 million to $150 million to buy new Macy's shares, reassured Macy's suppliers and kept merchandise flowing in.
So Macy's has made it to the peak of the Christmas selling season, now underway, with a maximum of merchandise on its shelves and a minimum of bad publicity. Which is a lot better than Federated Department Stores, now in bankruptcy, did under similar circumstances a year ago. If Macy's managed its business as deftly as it has managed the news, it wouldn't be in any trouble.
But the talk is starting to wear a bit thin.
The key to whether the company and its stockholders are serious about helping the company, or whether they're just trying to bluff their way past Christmas, is the stock purchase deal. The sale of Macy's credit business is nice -- every $100 million helps, even when you're $5.6 billion in debt. But under Macy's loan agreements, the cash Macy's gets from that sale, which is supposed to close in January, must be used to repay relatively low-cost bank debt.
So the stock sale is where the real drama lies. It is a sale that values Macy's equity at the same $300 million that investors paid in Macy's 1986 leveraged buyout. That price is a mere one-fifth of the price Macy's was asking for its stock in September, swearing up and down that it wouldn't sell for less. The quick 80 percent markdown gives you an idea of how badly Macy's needs the money, which it could use to buy back perhaps $400 million of its bonds.
Even if $150 million of new cash arrives soon, though, Macy's will still be left with its basic problem: It is so heavily laden with debt from the LBO and the 1988 purchase of two Federated chains that it's hard to see how it can dig its way out. The company's operations make money, but not enough to cover its interest payments.
If you cast an eye over Macy's balance sheet and income statement, then look at the recession that's starting to afflict its major markets, you have to conclude that Macy's has a good chance of going Chapter 11 in 1991. (The company says I'm full of beans.)
A Macy's bankruptcy is not something I'm eager to see, but a Macy's bankruptcy wouldn't be the end of the world. Even with Macy's in Chapter 11, its namesake chain and its Bullock's and I. Magnin department store chains would still operate, as would its Aeropostale, Charter Club and Fantasies by Morgan Taylor specialty chains. After all, Federated is in Chapter 11, but Bloomingdale's is still around.
But a bankruptcy would pretty much wipe out the value of Macy's stock. Given that fact -- and given the fact that you can make up to 80 percent a year on your money by buying Macy's bonds if the company doesn't default -- why would anyone in his right mind buy Macy's stock, which is risker than the bonds?
Given the identities of the four investors who have committed to buy $100 million of the stock if other holders don't come across -- GE Capital ($43.1 million), Laurence Tisch's Loews tobacco-television-insurance conglomerate ($25.8 million), Michael Price's Mutual Shares mutual funds ($22.4 million) and Michigan shopping mall mogul A. Alfred Taubman ($8.7 million) -- we are obviously dealing with people in their right minds.
The obvious thing for these investors to do, if their motivations are merely financial, is to keep their checkbooks in their pockets until after Christmas. If Macy's has a decent Christmas, they buy the new stock and pray. If Macy's has an awful Christmas, they put the company into Chapter 11 and try to use their $150 million to buy control of the post-bankruptcy Macy's, which would have much less debt than Macy's in its current incarnation.
Macy's won't say anything, but it wants it known that it expects the stockholders to buy their shares before Christmas. A spokesman for GE Capital, the only stockholder that would talk on the record, first said that the deal is supposed to be completed next year, then the next day retreated to vague generalities -- after Macy's made a call or two to GE Capital, no doubt.
Even though all four investors have an interest in Macy's other than its stock -- Loews and Mutual Shares own bonds whose price would increase if the new stock is sold, GE Capital is a big lender to Macy's and is eager to buy Macy's Credit, Taubman leases tons of space to Macy's stores -- those interests aren't enough to justify a new $100 million investment on that basis. At least, I don't think they are.
If the stock purchase closes before year-end, anyone who cares about Macy's will owe the stockholders a vote of thanks because they will be acting as financial statesmen willing to take a risk without the commensurate rewards. If, however, their money doesn't show up until 1991, these stockholders will be the Milli Vanilli of finance -- a great show, but not much substance.
Allan Sloan is a columnist for Newsday in New York.