Dart Group Seen as Likely Bidder : Federated Soars on Takeover Talk

Renewed speculation that Federated Department Stores is ripe for a takeover--most likely by the Dart Group drugstore chain--sent the stock of the nation’s largest department store operator soaring $3.75 a share on Thursday to $94.

Federated, parent of Bullock’s and Bloomingdale’s, wouldn’t comment on the unusual stock activity. And Dart President Robert M. Haft did not return a reporter’s phone call.

But Wall Street and retail industry sources traced Federated’s stock price run-up to Dart’s sale earlier this week of its last remaining interest in Safeway Stores for $59 million. Dart earlier had abandoned its hostile bid for Safeway after losing to another suitor but until Tuesday had retained an option to buy 20% of Safeway’s future parent, SSI Holdings.

By giving up a future right to assets that analysts value at about $160 million in exchange for $59 million now, Dart is signaling its intention of pursuing other takeover targets, these sources said.

That the target is Federated is “entirely conjecture,” said Eliot Benson, research director for the Ferris & Co. brokerage in Washington. K mart and J. C. Penney also have been rumored as Dart’s next quarry.

But it is only natural, Benson and other Dart-watchers said, that Dart’s decision to abandon its interest in Safeway would reignite rumors of a hostile Dart attack on Federated that persisted for months before Dart’s hot pursuit of Safeway began last summer.

After pocketing Safeway’s $59 million, Dart now is estimated to have a cash kitty of $500 million. That is plenty, analysts said, to launch a bid for Federated, which, with annual sales of about $10 billion, is about half Safeway’s size.

Federated is an obvious choice for Dart, they explained, because retailing is a business that Haft and his father, Dart founder Herbert H. Haft, understand and because Federated stock is considered undervalued. Moreover, while the company is said to have made major performance strides recently, many analysts still regard it as too fat, insufficiently aggressive in merchandising and thin in its management leadership.

With some simple cost cutting alone, these analysts said, the Hafts could turn a tidy profit at Federated.

Another prospect is that Dart might settle for parts of Federated. In that case, the Cincinnati-based company’s Ralphs Grocery operations would be a logical choice. Federated’s management is known to have ordered a housecleaning at the grocery chain some months ago, and Dart’s drugstore business is closely related as a retailer, according to this view.