Starboard Takes Stake in Macy's, Wants Real Estate Spun Off

Starboard Value LP has made a new investment in retail giant Macy's Inc., and is suggesting the company spin off its real estate into a separate company.

Starboard founder and Chief Executive Jeff Smith said Wednesday that the real estate is worth about $21 billion, and that essentially the value of the Macy's operating business isn't being recognized by the stock market. He was speaking at CNBC's Delivering Alpha conference in New York

Macy's shares rose 4.6% to $69.80 on the news, giving it a market value of more than $23 billion.

The activist investor has recently succeeded in pushing a similar move at restaurant operator Darden Restaurants Inc., a plan put in motion after Starboard threw out the entire board of Darden in a shareholder vote last year.

Macy's has already been under pressure from other investors who want it to follow the path set by Saks owner Hudson's Bay Co., which has sold some of its property in sale-leaseback transactions. Macy's has said it would explore options, but people familiar with the matter have said it is wary of long-term leases.

Starboard believes the company could separate its real estate in strong-performing malls and enter into lucrative sale-leaseback transactions with its trophy properties such as the Herald Square in New York. The sale-leaseback transaction could allow Macy's to continue controlling the stores.

"In our conversations with them, we think they are receptive to looking into it," Mr. Smith said of his ideas for Macy's.

Write to David Benoit at [e-mail]

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