By George Anderson
Federated Department Stores announced this morning that it has agreed to acquire rival May Department Stores in a deal valued at approximately $11 billion. May shareholders would receive $36.00 for each share they hold.
The deal will make the combined company the largest department store chain in the U.S. with about 1,600 stores operating under the banners of Macy's, Bloomingdale's, Marshall Field's, Filene's and David's Bridal.
Count former Federated and J.C. Penney chairman and chief executive Allen Questrom as one of those who believe Federated made the right move with this deal.
"I believe that the Federated team would not have made this move unless they knew they could add value," he told The Cincinnati Enquirer. "They will be able to bring May back to the profitability that the company had throughout the 1990s, and Federated should be able to bring the profitable private labels to May stores across the nation."
Howard Davidowitz, chairman of Davidowitz & Associates retail consulting firm, has a different take.
"May has seen shrinking sales of 7 percent, and unless you arrest that decline in one year, you've overpaid. Federated has bought a crisis. This is two companies with small market shares, and they've not been growing," he said. "I think of buggy whips. Federated has bought into a shrinking business."
The deal will have to pass shareholder and regulatory approval before being finalized.
Moderator's Comment: What will Federated need to do to make a success of its merger with May Department Stores?
Reports suggest Federated intends to help pay for this deal by possibly selling off its credit businesses. The Cincinnati Enquirer report said it may also consider selling the David's chain.
A report in The New York Times said analysts such as Oppenheimer & Company's Bernard Sosnick expect Federated to close as many as 200 underperforming stores currently operated by May. It may also extend its national branding of Macy's by putting its banner over stores currently operating under the Famous-Barr, Filene's, Foley's, Hecht's, Kaufmann's, Meier & Frank, Robinsons-May and Strawbridge's names.
"Together, using the Macy's name, a powerful national franchise could be established," wrote Mr. Sosnick in a note to investors. "This, we believe, is the compelling force behind a possible merger between the two, along with cost reductions due to the elimination of redundant activities." - George Anderson - Moderator
- Federated to buy May for $11B - The Cincinnati Enquirer
- Federated Buys May Company - St. Louis Post-Dispatch
- Federated Agrees to Buy May for About $11 Billion, Executives Say - The New York Times
- Macy's Operator Federated Is Buying May - The Associated Press/Forbes.com
- Deal will make Federated flush in mall properties - The Chicago Sun-Times
- Shake-up for shoppers looms - The Arizona Republic
- A Federated-May Deal Could Just Mean a Bigger Dinosaur - Los Angeles Times