In a merger that will put two of Southern California's major department store chains under common ownership, Associated Dry Goods finally agreed Wednesday to be bought by May Department Stores in an exchange of stock worth $2.47 billion.
May is the parent of May Co. California, and Associated owns the J. W. Robinson chain. Combined, the two companies would rival Federated Department Stores, the nation's largest department store company and owner of Bullock's here. The merged companies would continue to operate May Co. and Robinson's as separate chains, officials said.
The agreement followed weeks of negotiations that had stalled in recent days because the companies could not agree on how many May shares would be exchanged for each Associated share.
Under the deal, May will give 0.86 share of its stock for each Associated share. Based on May's closing stock price Wednesday, the value would amount to $61.81 a share. Ultimately, however, the value of the deal will depend on the price of May's stock on the day the merger is completed, which is expected within 80 days.
May, with headquarters in St. Louis, has been pursuing its New York-based competitor since June, 1984, although negotiations did not begin in earnest until 3 1/2 weeks ago.
In Southern California, there are 36 May Co. California stores and 23 Robinson's locations. Together, they control more than 40% of the area's department store sales, according to industry estimates.
May Co. California is May's largest division. Its 1985 sales of $784.2 million made up nearly 24% of the parent's $3.33 billion in department store sales. The chain employs 13,000 of May's 72,500 workers. The company also operates May stores in Ohio, 65 Venture discount stores and 2,005 Payless ShoeSource stores.
Robinson's accounts for an estimated $560 million in sales, or about 21% of Associated's $2.7 billion in department store sales. Of Associated's 60,000 employees, about 9,500 work at Robinson's.
Outside Southern California, the two companies' stores also overlap in Denver and Pittsburgh. The Federal Trade Commission has requested additional information about the proposed merger, apparently to study antitrust implications.
Susan Ticknor, a spokeswoman for the FTC in Washington, would not acknowledge whether an investigation is under way, but she said the commission's role generally is to determine whether a merger "would unreasonably restrain competition in any market." If it does, one option would be for the companies to agree to divest certain operations in order to overcome FTC objections.
Industry experts contend that customers may scarcely notice that Robinson's and May Co. have the same corporate owner.
At the flagship Robinson's store in downtown Los Angeles, Wednesday was inventory day and many of the store personnel were so busy counting merchandise that they did not realize an agreement had been reached to sell the company.
News to Some Employees
"I didn't know," said cosmetics saleswoman Jean Mack with a surprised expression, taking a pause from her counting. "They kept saying they sold it, then they said they didn't. They really did?"
Some other employees said they had only "just heard" and declined to comment. Others said they were not worried that Robinson's would change.
If anything, some sources say privately, competition may intensify in Southern California as May takes control of department stores at two ends of the retailing spectrum. Robinson's has traditionally been considered an "upscale" chain catering to a wealthier clientele, whereas May Co. has appealed to middle- and lower-middle-income customers. It's believed that competitors, including the Broadway and Bullock's, would therefore feel greater pressure to win customers.
(Department stores such as May Co. are considered different from general merchandisers such as Sears, Roebuck & Co., the nation's largest retailer. Department stores sell mostly soft goods and do not attempt to offer all lines of merchandise.)
May's different management approach is likely to result in long-term changes at some Associated divisions, analysts said. "May is more centralized, and Associated is more decentralized," said analyst Monroe Greenstein of Bear, Stearns & Co. in New York. "I don't know that there would be any sudden change, because May is merging with a basically good company with some outstanding divisions. If there are any changes made, they would go slowly."
Joseph J. Schumm Jr., a senior vice president at Associated, said employees in that company's divisions "should not have much concern about their jobs." However, he added, "there will be some real concern at the corporate level because they're not going to need all the Associated executives."
Although analysts generally applauded the deal, apparent concerns about short-term effects of the stock swap on May's profits per share continued to drive down May's stock price Wednesday. The shares closed off $3 at $71.875 on the New York Stock Exchange.
Associated's stock also fell, by $3.25 to $58.75. With more stock outstanding, May's per-share earnings would be about 13% lower after the merger.
Reaction among other Southern California merchants was subdued. H. Michael Hecht, chairman of the 42-store Broadway chain, said: "The May Co. and Associated are both fine companies and represent powerful retail department stores in Southern California. We in the Broadway see no change in its direction as a result of the merger and will (continue to) pursue its long-range strategies."
The merger deal marks a victory for May Chairman David C. Farrell, a dogged, hands-on executive with a reputation for getting what he goes after. After putting out the first feelers in June, 1984, he met several times over the next six months with Joseph H. Johnson, his counterpart at Associated. However, he was repeatedly rebuffed with the comment that "the timing was not right."
Late in May, the interest heated up again. On June 20, Farrell flew to New York. Johnson, who was moving into a new home, declined a request to meet but did hear Farrell's proposal by phone. Two days later, a Sunday, May publicly announced details of a deal in which it would exchange $66 of May common stock for each Associated share--a proposal valued at about $2.64 billion. The next day, Associated's board requested more time to consider the offer.
From then on, negotiations ranged from hostile to lukewarm. On June 26, May launched an unfriendly offer to pay $60 a share in cash for 51% of Associated. That bid was designed to pressure Associated into accepting the higher, friendly offer.
Associated's board then rejected both offers as inadequate and adopted a so-called "poison pill" plan that would allow shareholders to buy stock at half price in the case of a hostile takeover. (Legal proceedings relating to that plan have been postponed so that the companies can work out details of the merger.)
N.Y. Flagship Store
Associated also began discussions with "a number of parties" that expressed interest in buying individual divisions. Among the company's more attractive operations are Lord & Taylor, whose elegant flagship store is on Madison Avenue in New York catty-corner from Associated's corporate offices; Caldor, an upscale discount chain in the Northeast, and Robinson's.
Ultimately, analysts say, the deal will benefit both companies, with Associated's shareholders getting a good price and May absorbing some upscale divisions. "It's a very good deal," said Greenstein. "(Associated's executives) did to their credit what was best for shareholders."
May and Associated said the agreement is contingent on completion of a definitive agreement, approval by both companies' boards and shareholders and other routine conditions. The boards have scheduled meetings on Friday to act on the agreement, the companies said.
Times staff writer Penelope McMillan contributed to this story.