The much smaller Toronto-based chain is in preliminary talks with the struggling retailer, the Wall Street Journal reported Friday.
The retailer has been under pressure from activist investors displeased with its stock performance to sell of its stores into a real estate investment trust or look at ways of wringing out money from its physical assets.
Cowen and Company said in an analyst note that Macy's has attractive qualities for a buyer, including a low a price to earnings valuation of 10 times, $2.8 billion of free cash flow and a large real estate portfolio.
Macy's would be a challenge for Hudson's Bay to absorb.
If Macy's does wind up merging with Hudson's Bay, it would also reunite Macy's and Lord & Taylor under one corporate roof. Macy's shares shot up 9% on the news. But the company has resisted a traditional sale-lease back of its real estate portfolio - as Starboard and others have advocated, saying the move wouldn't be in its long-term interest.
Founded in 1670, Hudson's Bay began as a fur trading business and once owned more than 40 percent of what is now Canada.
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The talks between the companies are in the early stages and could lead to something other than an acquisition, according to the Journal, such as a deal for Macy's real estate, which could be valued at roughly $14 billion.
Share of Macy's were up more than seven per cent, trading at $32.99 U.S. on the New York Stock Exchange.
Earlier this week, reports surfaced that Macy's outgoing CEO Terry Lundgren was becoming more willing to sell the store chain he's headed for 13 years to avoid a looming battle for control of its board.
Despite this, Macy's has a reported $7.5 billion debt.
Macy's hired an executive vice-president for real estate previous year with the task of creating and structuring real estate opportunities. Its stock has slumped since then to $29 per share last week. The stock has lost more than half its value since Starboard bought shares in the company in mid-2015.