updated 7/18/2007 6:29:35 PM ET 2007-07-18T22:29:35

Private equity firm Kohlberg Kravis & Roberts Co. is studying a bid to buy Macy’s Inc. for about $24 billion, according to an online trade report published Wednesday.

Macy’s shares soared more than 8 percent, or $3.27, to $43.30 in afternoon trading, the high end of its 52-week per share range of $33.52 to $46.70.

According to Women’s Wear Daily, the two parties could agree in principle within a few days. The $52 a share offer may or may not exclude Macy’s debt, according to the trade paper, which cited anonymous private equity sources.

WWD also said that it was believed that KKR would keep current Macy’s management, including chairman and CEO Terry Lundgren, who orchestrated Federated Department Stores Inc.’s acquisition of May Department Store Co. in 2005. The name was changed to Macy’s in June.

WWD also reported that The Principal Investment Area, Goldman Sachs Group Inc.’s private equity arm, and its real estate group are believed to be participating in the negotiations.

Macy’s spokesman Jim Sluzewski and David Lilly, a spokesman for KKR, declined to comment on the report Wednesday.

A person close to the situation, who asked not to be named given the sensitivity of the negotiations, said Goldman Sachs was not involved in the talks.

Rumors about a possible buyout of Macy’s have driven shares up in recent weeks and are occurring as the department store operator struggles to reinvigorate its business. Last September, the company converted most of its former May Co. stores into Macy’s, transforming Macy’s into a national department store brand. But the turnaround of the former May stores has not been progressing as well as expected.

The department store operator, which also operates Bloomingdale’s, has been facing challenges like a weakening home market, which has depressed its home furnishings sales. Macy’s is counting on the fall introduction of an exclusive home furnishings collection by home diva Martha Stewart to rekindle business, but analysts are concerned how it will fare given the continued weakness in the home sector.

Macy’s reported last week that same-store sales, or sales at stores opened at least a year, fell 2.7 percent in June. Analysts surveyed by Thomson Financial expected same-store sales to fall just 0.8 percent.

The company also said earnings for the second quarter would be much lower than the year-ago period. Macy’s is expected to report financial results on Aug. 6.

Citigroup analyst Deborah Weinswig wrote in a report published July 10 that Macy’s appears to be an “attractive leveraged buyout candidate due to its strong cash flow and real estate portfolio.”

Other analysts have noted recently that management may not be as open to a buyout, however, because of Campeau Corp.’s highly leveraged acquisition of Federated Department Stores Inc. in 1988 that led to its bankruptcy filing two years later. The company emerged from bankruptcy in 1992.

Walter Loeb, president of Loeb Associates, a retail consulting firm, said the company is facing increasing investor scrutiny amid rising business challenges, making a buyout more attractive because it could be easier to repair its problems if it was privately held.

“Macy’s is muddling. It is having problems right now. Instead of looking at a three-year (turnaround) plan, we are looking at a five-year plan,” Loeb said. “I don’t believe that management wants to give up control, but it may be forced to. It has a fiduciary responsibility.”

KKR, which filed plans to go public earlier this month, has been recently staking a claim in the retail market. In recent weeks, the private equity firm completed its $7.3 billion acquisition of Dollar General Corp., the discount retail chain. The second deal, also completed this month, was the $7.1 billion purchase, along with another private equity player Clayton, Dublier & Rice Inc., for U.S. Foodservice, a division of Dutch supermarket-chain owner Royal Ahold NV.

In May, there was a flurry of reports that KKR was targeting footwear companies Skechers USA Inc. and Genesco Inc. to take them private in two separate deals.

Copyright 2007 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.

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