Macy’s Jumps Into Bidding for Federated Store Chain
R.H. Macy & Co., the legendary New York retailer, emerged Monday with a surprise cash and stock bid for Federated Department Stores.
The move threw Toronto developer Campeau Corp., which has been pursuing Federated for weeks, into a frenzy of activity to devise a countermove. The friendly offer, in the view of Federated’s board of directors, would top Campeau’s current $6-billion cash bid.
A purchase by Macy’s would pair two of the nation’s premier retailers and create a merchandising juggernaut. It would also quickly give Macy’s a long-sought critical mass in Southern California with Federated’s upscale Bullock’s chain of department stores.
A Macy’s combination with Federated would “obviously end up being the most powerful department store entity in the United States,” said Monroe H. Greenstein, a retail analyst with Bear, Stearns & Co. in New York.
It could also create a bonanza for shoppers in Southern California. “The consumer would be the victor,” said Thomas H. Tashjian, vice president of retailing at Seidler Amdec Securities, a Los Angeles investment house. “They would get more selection and more promotion.”
Macy’s is one of the nation’s largest department store chains, with 91 department stores, including 25 in Northern and Central California and Nevada.
Under Chairman and Chief Executive Edward S. Finkelstein, Macy’s has won kudos on Wall Street for digging out of much of the debt it took on for a $3.7-billion buyout when the firm converted to private ownership in 1986.
Federated, based in Cincinnati, is valued for its real estate and such prestigious franchises as Bloomingdale’s, Bullock’s, I. Magnin and Filene’s. Federated, through its many regional chains, owns more than 650 department, food, mass merchandising and specialty stores nationwide.
The entry of Macy’s into the Federated sweepstakes appeared likely to result in another delay in a decision about the sale of Ralphs Grocery, the 129-store supermarket chain based in Compton. Ralphs, which is regarded as a likely candidate for sale no matter who buys its parent company, is expected to bring $1 billion.
Stunning Development
Many Wall Street analysts and arbitragers were stunned by Macy’s sudden appearance. They had expected Federated and Campeau to hammer out final details of a deal that had been foreshadowed in a statement Friday.
But by late Monday, it appeared that Federated instead might become part of a new entity to be called Macy’s/Federated Inc.
Under the Macy’s offer, announced late Monday by Federated, shareholders would receive $73.80 a share in cash for about 80% of Federated’s 88.5 million outstanding common shares. The rest of the Federated shares would be exchanged for a 40% share of the newly formed company, the value of which could not be determined.
The combined company would seek a listing on the New York Stock Exchange, marking Macy’s return to public ownership after being privately held since July, 1986. Observers viewed a sale of stock to the public as key to Macy’s ability to finance the deal.
Federated said the board of the combined company would include “significant representation from the Federated board.”
Beats Campeau Bid
The Macy’s bid appears to comfortably top Campeau’s current $6-billion proposal, under which shareholders would receive $68 a share in cash.
However, a Campeau spokeswoman noted that Macy’s cash offering--$5.2 billion for 80% of Federated’s common shares--is substantially less than Campeau’s offer of about $6 billion. She added that it is difficult to value the equity.
“We are disappointed,” she said. “We don’t believe that deal is as good as ours.” She added that Campeau representatives would attempt to meet with Federated’s board today.
On Friday, it had seemed that Federated and Campeau were on the verge of making the $68-a-share deal final. In a joint statement, they had said they were negotiating but could not offer assurances that such an agreement would be reached. On Wall Street, the feeling was that the tenacious Robert Campeau, chairman of Campeau Corp., had finally made such a strong offer that Federated’s board of directors had to cooperate.
But among other retailers, the feeling was that Federated would go to great lengths to avoid a takeover by Campeau. Monday’s events proved the point. “It ain’t over till it’s over,” one Wall Street source said.
The prospect of a bidding war cheered investors, who continued the run-up in Federated shares that began when Campeau launched a tender offer for the company’s shares on Jan. 25. In composite New York Stock Exchange trading, the shares rose $2 each to $66.50, with nearly 1.6 million shares changing hands.
Others Interested
Other parties--notably a consortium of Dillard’s Department Stores and the development firms of Taubman Co. and Melvin Simon & Associates--reportedly have expressed interest in buying Federated.
Robert Campeau won grudging respect on Wall Street after his hard-fought $3.5-billion purchase of Allied Stores. After that late-1986 acquisition, however, he quickly set about dismantling the company, selling off more than half its units and eliminating thousands of jobs to raise funds to cover the massive debt he incurred.
His company retained some of Allied’s most profitable stores, including Ann Taylor and Brooks Bros. Late last week, in an indication of his firm’s intention to buy Federated, Campeau announced that he had agreed to sell Brooks Bros. for $770 million to British retailer Marks & Spencer. That deal would go through only if Campeau succeeded in buying Federated.
All along, Campeau has been plagued by Wall Street’s doubts that he could raise sufficient funds for the purchase of Federated. On top of other commitments from banks, the agreement with Marks & Spencer apparently persuaded the Federated board that Campeau could secure the needed backing.
Improved Profits
The prospect of being merged with Macy’s should cheer employees at Federated’s headquarters and divisions, who have expressed fear that a big ax would fall if Campeau succeeded. Since going private, Macy’s has improved profits, increased sales and reduced debt without significant layoffs. More than 400 Macy’s managers, in fact, participate in the ownership.
Whoever succeeds in buying Federated, which reported 1987 sales of $11 billion, it is likely that the purchaser would sell Federated’s non-department store divisions.
Macy’s has been a fixture in New York since 1858, when a 36-year-old Quaker named Rowland Hussey Macy opened a humble dry-goods store at 204 and 206 6th Ave., near 14th Street. The first day’s take was $11.06.
For 1987, the company reported sales of $5.2 billion and pretax profits of $59.6 million, far better than the company’s own projections of a pretax loss of $42.7 million. Since converting to private ownership, the company has reduced its debt to $2.75 billion from $3.2 billion.
Late last year, the company embarked on a venture into specialty retailing, opening four Aeropostale stores featuring bomber jackets, baggy pants and other items evoking “Casablanca”-style images of French aviators. The company also plans at least two other specialty chains.
Government Position
It is unclear how Macy’s would absorb the Federated stores. As for antitrust concerns, one Wall Street observer speculated that the government would be less inclined to challenge a purchase by Macy’s than by Campeau. Campeau and Federated operations would overlap in at least three cities.
In a presentation to Federated’s board Monday, Macy’s management and financial advisers noted that the agreement is subject to several conditions, including approval by both companies’ boards and signing of a definitive agreement.
Macy’s said it has letters from two investment banks--Drexel Burnham Lambert and Kidder Peabody--indicating that the firms are “highly confident” that they can place $1.8 billion in debt or provide bridge financing in that amount. In addition, Bankers Trust Co. and Manufacturers Hanover have indicated that they would help arrange financing.
Staff writer Carla Lazzareschi contributed to this story.
