Associated Near Merger--if May Ups Ante
Associated Dry Goods named its price Monday, saying it would be willing to accept a takeover bid by May Department Stores if May would increase the value of its nearly $2.7-billion offer by about $100 million.
But Associated said May so far has been unwilling to go that high in back-and-forth negotiations that have gone on since the bid was first made public June 22.
The stock swap deal, which would create a department store company to rival first-place Federated Department Stores, now appears to hinge on a relatively minor adjustment in the amount of common stock that May would be willing to offer for each Associated share.
In a letter to May Chairman David C. Farrell, Associated Chairman Joseph H. Johnson formally acknowledged that Associated’s special committee of negotiators had indicated a willingness in recent discussions to accept an exchange of 0.882 share of May common for each Associated share but that May had been unwilling to go that high. May spokesman Jim Abrams said the company had no comment.
May’s original bid was for a flat $66 per share, worth $2.64 billion. Late last week, May disclosed that in recent talks it had offered to modify that bid by specifying an exchange ratio of 0.85 share. Under stock prices in effect then, that “sweeter” bid would have been worth about $2.71 billion. Based on Monday’s share price, however, the value has slipped to $2.67 billion.
The value of May’s stock, which traded at $87.75 just before the bid was announced June 22, has since eroded. In New York Stock Exchange trading Monday, it closed at $78.62 1/2, down 75 cents. Associated stock fell $1 to $64.12 1/2.
Joseph J. Schumm Jr., senior vice president of corporate administration at Associated, said the New York-based retailer disclosed the letter’s contents partly because of “confusion” that resulted from May’s release last Thursday of a letter from Farrell to Johnson.
In that letter, May indicated that its sweetened offer had been rejected. Since then, Schumm said, “it’s been unclear what Associated’s position has been. We’re going public now (and) telling the special committee’s side of the story.”
He said the recent discussions turned to “what if” scenarios, in which May’s and Associated’s investment bankers made offers and counteroffers but could not agree.
He noted that the higher exchange ratio would boost the price by “roughly $100 million.” He added that no talks have been held since negotiations stalled last week.
Separately, Associated and May said the Federal Trade Commission has requested additional information under a 1976 federal antitrust law. Such a request is typical in cases when a merger might inhibit competition.
Under the law, May is not allowed to purchase any Associated shares until 10 days after it has complied with the FTC’s request. May is seeking to buy 21 million shares of Associated, or about 51%.
Associated has outlined areas where it directly competes with May. Those are Southern California, where Associated has 17 J. W. Robinson stores and May Co. California has 24 stores; Denver, where Associated operates nine Denver Dry Goods and May has nine May D&F; stores; Pittsburgh, with eight of Associated’s Joseph Horne stores to seven of May’s Kaufmann’s locations, and nearby Youngstown, Ohio, with one Joseph Horne and nine of May’s Strouss stores.
Associated said the combination of May and Associated would eliminate “competition with respect to some $2.3 billion in sales” in those areas of overlap.
