In addition to its namesake department store chain and Home Outfitters home décor business, Hudson's Bay's retail portfolio includes Saks Fifth Avenue and Lord & Taylor, and the 80-store Galeria Kaufhof in Germany.
Macy's has reported declines in same-store sales, a key retail metric, in 12 of the past 14 quarters.
The Journal reported talks between the two companies are in the early stages.
Both Hudson's Bay (HBC.TO) and Macy's told BNN it does not comment on rumors or speculation. The company had a market cap of C$1.82 billion (US$1.40 billion) as of Thursday's close.
"The whole thing makes no sense to me", said Howard Davidowitz, CEO of Davidowitz & Associates, a retail consultancy and investment bank, adding that heavy debt loads are a huge obstacle for chains to overcome. Hudson's Bay also had a market capitalization of $1.41 billion late Friday morning, compared to $10.64 billion for Macy's.
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Instead, it looks like the beleaguered department store chain might put itself up for sale in a last-ditch effort to send Chairman and Chief Executive Terry Lundgren out without triggering an all-out board war. Up in Toronto, Hudson's Bay is up 4%. Starboard Value bought its Macy's stake in 2015 and from the start has pressed the company to spin off its real estate holdings.
The Canadian retailer was acquired in 2008 by NRDC Equity Partners, headed by Richard Baker.
Since the story broke, Macy's stock has climbed 5.17%.
On the news, Macy's stock shot up. The activist investor has also pushed the retailer to unlock the value of its real estate assets.
Several sources said that Smith is seeking board seats at Macy's.