Finimize - 🛍️ Bricks and barter

What’s going on here?

Shopping mall and Thanksgiving Day parade mainstay Macy’s is browsing the details of a $6 billion buyout offer, according to news out Monday.

What does this mean?

With consumers increasingly favoring clicks over bricks, department stores like Macy’s and its more-upscale sister Bloomingdale’s are left with just their perfumed entrances and a waft of nostalgia to entice shoppers through the door. But private investors aren’t known for their sentimentality, so there must be something else that’s pulled Arkhouse Management and Brigade Capital to put an offer on the table. That something might be the fact that Macy’s owns a lot of its bricks and mortar – and those real estate holdings alone are rumored to be worth almost $6 billion. Arkhouse is a real estate specialist firm, after all, and sees the world in price-per-square-feet.

Why should I care?

For markets: Inspect the stitching.

Bolt the heavy glass doors on retailers and it’s easy to figure out what they’re worth. Add up all the assets – the New York flagship Herald Square, all the other stores, unsold merchandise, and any cash in the bank. Then subtract what’s owed – debt and unpaid bills. Do that with Macy’s and you get just $4 billion – considerably less than what’s on offer. So, these private equity bidders clearly see some other opportunity riding Macy’s old wooden escalator: a more profitable retail future or some new kind of magic on 34th Street.

The bigger picture: Shop away the blues.

Shopping was Carrie Bradshaw’s cardio, and plenty of US consumers seem to be keeping fit that way. Ecommerce accounts for just 15% of what they buy. That percentage, though, has been trending upward, suggesting there could be far tougher days ahead for physical stores. Then again, maybe not. With younger generations spending so much time on their phones doomscrolling, maybe there’s a future for good, old-fashioned, in-person retail therapy.

What’s going on here?

Occidental Petroleum, a favorite of Warren Buffett’s, continued big oil’s big spending spree on Monday.

What does this mean?

Santa’s busy right now, so he might have to send an elf to deliver a stack of billion-dollar-bills to CrownRock’s owners. Mind you, they probably won’t mind if it’s not the big man himself delivering the parcel. After all, $12 billion – between three and four times the company’s sales – is a pretty special present, especially in light of oil’s recent price decline. But CrownRock’s on the nice list: it’s got a growing production of crude from one of the most attractive oil wells – the Permian Basin.

Why should I care?

Zooming in: Well wishing.

This time of year is pricey for everyone, but Occidental (OXY, to its trader pals) has only just put its finances back in order, after spending $55 billion on a poorly timed acquisition of Anadarko, right before the pandemic. So this deal, which will add another $9 billion in debt, will raise some eyebrows, especially with interest rates this high. Oxy’s not worried: it says the deal will add $1 billion to its cash flow, assuming that crude sticks above $70. Problem is, that’s a big assumption: it’s not far from that now. And Occidental could lose money here if it goes lower.

The bigger picture: Bigger fish.

Oil companies have tended to use the money they make from higher-than-normal energy prices to explore and extract as much oil as possible. But if predictions are right and the world continues to swap fossil fuels for greener alternatives, then flooding a declining market with even more oil is probably a bad idea. Occidental, Exxon, and Chevron all sense a shifting wind: instead of drilling more wells, they’re snapping up smaller players – and looking to ultimately command a bigger share of what might be a smaller market.