Macy's shares surged Friday as takeover rumors continued to swirl around the company, but at least one proposed combination would be tough to pull off, sources say.
Earlier, shares of the largest U.S. department store chain jumped more than 10 percent, after The Wall Street Journal reported Macy's had been approached by Canada's Hudson's Bay, the owner of Saks and Lord & Taylor.
People familiar with the matter told CNBC that those discussions did take place but the talks are at an early stage, and may not lead to a deal.
Those people said Macy's management took a meeting with Hudson's Bay, but has not engaged in talks on a deal.
Hudson's Bay has been eager to expand its footprint in the U.S., however, Macy's would be a challenge for Hudson's Bay to absorb. Ahead of this latest rumor, Macy's market capitalization was nearly $10 billion, while Hudson's Bay was about $1.7 billion. Macy's also has a lot of debt — about $7.5 billion, according to the Journal report.
People familiar with the talks said Hudson's Bay might need to bring in a partner to provide equity, but would still need to lever the combined company a great deal to make it happen. One potential scenario could involve Hudson's Bay making the purchase and then splitting into an operating company and a property company with the property company taking on most of the debt.
This complicated structure could make an acquisition very unlikely, sources told CNBC.
Takeover rumors were sparked Thursday by a report in the New York Post, which said Macy's was seeking a buyer.
That report, which also cited unnamed sources, said activist investor Jeffrey Smith, of Starboard Value, was putting pressure on the company in the wake of its poor performance. Smith became an investor in July 2015, and Macy's stock has shed nearly 60 percent since that time, the report said.
Buoyed by the rumors, Macy's shares jumped as high as $34.37 Friday, but had since given back some of those gains. The stock recently changed hands at $32.42, up 5.5 percent.
Hudson's Bay told CNBC it does not comment on rumors or speculation. Macy's also declined to comment.
Macy's has been dogged by disappointing sales in recent quarters and in January it announced 68 of the 100 locations it plans to close as it looks to turn around its performance.
The company's longtime chairman and CEO, Terry Lundgren, is also about to depart the company, handing the reins to Macy's President Jeff Gennette later in the quarter.
According to The Wall Street Journal, Macy's executives could reap large severance packages if the retailer sells itself. Regulatory filings suggest Lundgren, for example, would receive $80 million if there's a change of control, the paper said.
"It's probably more real than not," said Dana Telsey, CEO of Telsey Advisory Group, commenting on the speculation about a deal. However, she cautioned that it is very difficult to integrate the operations of department store chains, given the hundreds of properties that are involved. Also, any deal doesn't fix the fact that sales are struggling.
"The top line is struggling for department stores," she said. "They have some very valuable locations and I think they're pruning underperforming stores, so there's more to do."
Stifel analyst Richard Jaffe said Hudson's Bay, for a retailer, has been innovative in making acquisitions in the past. As an example, he cited the company's purchase of Saks for $2.9 billion. Quickly afterward, the flagship store was appraised for $3.7 billion.
In a research note, Jaffe estimated any offer for Macy's would have to be at least $40 per share, which is a 30 percent premium to where Macy's stock opened Friday.
"This is not based on any underlying valuation calculation but rather the approximate midpoint of the range of premiums paid for retail buyouts in recent years," Jaffe said. "The estimates in the public domain value Macy's with its real estate at $20 billion, or $65 per share, and the public market this morning at $10 billion, or $30 per share. The large estimate involves a speculative valuation of the real estate, which we believe to be optimistic."
Jefferies analyst Randal Konik said that Macy's does fit "to a certain degree" the acquisition criteria Hudson's Bay has laid out in the past. The criteria includes having good locations, undermanaged retail operations, unlocked real estate value, and opportunities for revenue and cost synergies, he said.
Some also suspect the talks could result in some sort of real estate transaction.
— Reported by CNBC's David Faber; written by CNBC's Christina Cheddar Berk; Natalia Wojcik contributed to this report.