{ "docId": "019dd923-622b-71dc-a6d9-c4b955586b03", "docSlug": "ac649d3561f0", "documentTitle": "Macy's Inc. (M)", "authorId": "03_Starboard_Value", "authorName": "Starboard Value", "documentKindSlug": "activist-deck", "documentKindLabel": "Activist deck", "sourceTypeSlug": "activist_investor", "sourceTypeLabel": "Activist investor", "presentationDate": "2016-01-11 00:00:00", "orientation": "landscape", "aspectRatio": 1.3333334, "pageNumber": 20, "pageCount": 27, "prevPage": 19, "nextPage": 21, "slideType": "valuation_table", "function": "show_valuation_bridge", "density": "overcrowded", "nDataPoints": 14, "notes": "Includes a specific rationale for targeting 3.5x based on Moody's criteria.", "elementsJson": [ "headline_text", "bullet_list", "callout_box", "data_table", "footnote" ], "metadataConfidence": 0.95, "imagePath": null, "slideHref": "/slides/019dd923-622b-71dc-a6d9-c4b955586b03/20", "deckHref": "/decks/019dd923-622b-71dc-a6d9-c4b955586b03", "deckJsonHref": "/decks/019dd923-622b-71dc-a6d9-c4b955586b03.json", "deckAnchorHref": "/decks/019dd923-622b-71dc-a6d9-c4b955586b03#slide-20", "components": [ { "bbox": { "h": 0.1, "w": 0.45, "x": 0.05, "y": 0.52 }, "kind": "callout", "text": "Credit ratings depend on a number of qualitative and quantitative factors; however, in general Moody's recommends retailers stay below 3.5x Adjusted Debt / EBITDAR to achieve an investment grade rating.", "attrs": null, "subkind": "primary", "toolName": null, "toolSlug": null, "confidence": null, "componentId": "77cafd47-ba6a-4cd4-8870-b328bae1323a", "frameworkName": null, "frameworkSlug": null }, { "bbox": { "h": 0.1, "w": 0.45, "x": 0.05, "y": 0.38 }, "kind": "callout", "text": "While rating agencies calculate synthetic “Adjusted Debt” from capitalizing rents, it is not funded debt with maturities, and therefore, we believe this capital structure has less real risk for Macy's than the current capital structure.", "attrs": null, "subkind": "primary", "toolName": null, "toolSlug": null, "confidence": null, "componentId": "8a40373a-2d7b-45af-a3ea-645986d2c217", "frameworkName": null, "frameworkSlug": null }, { "bbox": null, "kind": "callout", "text": "We assume that Macy’s pays down enough debt to achieve 3.5x Adjusted Debt / EBITDAR and maintains a $1 billion cash balance.", "attrs": null, "subkind": null, "toolName": "Visual emphasis", "toolSlug": "visual-emphasis", "confidence": null, "componentId": "019dd953-25b3-7229-bef2-99c3a133ae4b", "frameworkName": null, "frameworkSlug": null }, { "bbox": { "h": 0.15, "w": 0.94, "x": 0.03, "y": 0.16 }, "kind": "list", "text": "Although Macy's would still have access to approximately $409 million of additional annual cash flow from the JVs' distributions, we feel it is prudent for Macy's to structure the OpCo so that it could stand on its own. We believe this structure will ensure that shareholders give Macy's credit for the transaction, and Macy's is ready to go to step two(1) when it is comfortable.\nWe assume that Macy's pays down enough debt to achieve 3.5x Adjusted Debt / EBITDAR and maintains a $1 billion cash balance.", "attrs": null, "subkind": "bullet", "toolName": null, "toolSlug": null, "confidence": null, "componentId": "45b4b0d6-c9d4-4e49-88c5-2aa1a171aeac", "frameworkName": null, "frameworkSlug": null }, { "bbox": null, "kind": "metric", "text": "Adjusted Debt / EBITDAR: 3.5x", "attrs": null, "subkind": "primary", "toolName": "Quantification", "toolSlug": "quantification", "confidence": null, "componentId": "019dd953-25b3-7229-bef2-a04c9c8165de", "frameworkName": null, "frameworkSlug": null }, { "bbox": { "h": 0.08, "w": 0.94, "x": 0.03, "y": 0.8 }, "kind": "paragraph", "text": "Note: We target 3.5x Adjusted Debt / EBITDAR because, based on Moody's criteria, we believe the OpCo will be able to remain investment grade. However, Macy's can easily attain its current publicly stated 2.8x target ratio over time by distributing the JVs earnings back to Macy's OpCo, without impacting valuation.", "attrs": null, "subkind": "paragraph", "toolName": null, "toolSlug": null, "confidence": null, "componentId": "b149b631-37fe-4c8c-a59e-d47b545b428b", "frameworkName": null, "frameworkSlug": null }, { "bbox": null, "kind": "quote", "text": "Credit ratings depend on a number of qualitative and quantitative factors; however, in general Moody’s recommends retailers stay below 3.5x Adjusted Debt / EBITDAR to achieve an investment grade rating. — Moody's", "attrs": null, "subkind": null, "toolName": "Authority citation", "toolSlug": "authority-citation", "confidence": null, "componentId": "019dd953-25b3-7229-bef2-9f8f40eb2d9a", "frameworkName": null, "frameworkSlug": null }, { "bbox": { "h": 0.1, "w": 0.94, "x": 0.03, "y": 0.89 }, "kind": "source-note", "text": "Source: Company filings and Starboard Value estimates.\nNote: While \"synthetic\" debt attributed to Macy's by applying a multiplier to leases does represent a real fixed cost, and it must be considered when thinking about the long-term risks to the business, the difference in legal status and financial risk between an operating lease and funded debt, with a large bullet payment required on a specific date, is substantial.\n(1) Step two represents a transaction where, once the Company is comfortable with the retail environment and its recurring cash flow profile before distributions from the JV, Macy's can pursue a further separation of its JV stake.\n(2) Estimated 2017E EBITDA based on consensus 2016E EBITDA less additional rent from JV transactions, plus $50 million of additional SG&A savings in 2017.", "attrs": null, "subkind": null, "toolName": null, "toolSlug": null, "confidence": null, "componentId": "1c9516be-ca60-4564-a504-eeb227104fef", "frameworkName": null, "frameworkSlug": null }, { "bbox": { "h": 0.4, "w": 0.3, "x": 0.58, "y": 0.36 }, "kind": "table", "text": "Adjusted Debt / EBITDAR After JVs\nDebt $1,433\nNTM Rent $1,200\nMultiplier 9.3x\nAdjusted debt $12,594\nNTM EBITDA(2) $2,403\nNTM Rent $1,200\nEBITDAR $3,603\nAdjusted Debt / EBITDAR 3.5x\nTotal debt $1,433\nCash $1,367\n(-) Share repurchases ($367)\nProforma cash $1,000\nNet debt $433", "attrs": null, "subkind": "valuation", "toolName": null, "toolSlug": null, "confidence": null, "componentId": "1e9f5f4b-cc6e-4b43-9f63-1ad20374032c", "frameworkName": null, "frameworkSlug": null }, { "bbox": { "h": 0.12, "w": 0.94, "x": 0.03, "y": 0.03 }, "kind": "title", "text": "Macy's is able to pay down its net debt balance at the operating company through the cash raised at the JV level (cont'd)", "attrs": null, "subkind": "headline", "toolName": null, "toolSlug": null, "confidence": null, "componentId": "d7864c05-82a4-4f12-8748-f1bc96a54d5b", "frameworkName": null, "frameworkSlug": null } ], "metrics": [], "tools": [], "frameworks": [], "arcBeats": [ { "to": 26, "from": 19, "beatId": "a429c9aa-dc93-4b9a-ade4-8588133aa0e3", "arcName": "The Consultant's Gambit", "arcSlug": "consultants-gambit", "beatName": "Impact & Next Steps", "beatSlug": "consultants-gambit-impact-next-steps", "evidence": "The document presents a proposed solution and highlights the potential impact", "position": 3, "confidence": 0.8, "parentBeatName": "Resolution", "parentBeatSlug": "resolution" } ], "loops": [ { "to": 26, "from": 19, "name": "Before After", "slug": "21-before-after", "bestFor": "Product demos, process improvements, ROI justification", "matchId": "13df8363-bb73-46cf-9061-40b6bf6e8400", "evidence": "The document presents a clear before-and-after scenario", "position": 1, "objective": "To show the potential impact of the proposed solution", "structure": "The Old Way (Pain) -> The Moment of Change -> The New Way (Glory) -> The Measurable Delta", "confidence": 0.7, "description": "Show the dramatic contrast between the old way and the new way through side-by-side comparison" } ], "imagePathAlt": null, "thumbSrc": null, "thumbSrcAlt": null, "locked": true }