Macy, Federated Said to Agree to Merger Accord
Retailing giants R. H. Macy & Co. and Federated Department Stores have reached a tentative merger agreement that would create one of the nation’s largest department store chains and further intensify California’s competitive retail environment, industry sources said Wednesday.
Although final details have yet to be worked out, the board of directors of New York-based Macy, which owns Bullock’s department stores, is scheduled to meet today to review the merger agreement.
Under the tentative agreement, Macy and Federated, whose stores include Bloomingdale’s, would then develop a joint plan to help Macy emerge from Chapter 11 bankruptcy court protection, retailing sources said. Federated would take on much of Macy’s huge $6-billion debt and Macy would operate independently under the Federated umbrella.
A source close to the negotiations said that Macy Chairman Myron E. Ullman III would remain with the merged company as a senior executive under the proposed agreement. Ullman and Federated Chairman Allen I. Questrom completed the proposed deal by telephone after Macy and Federated negotiators made substantial progress in talks in New York, the source said.
A merger of the two companies would create a chain with more than 300 stores and about $13 billion in annual revenue. For Cincinnati-based Federated, a major goal of a merger would be to get a base in California, where nearly half of Macy’s 111 Bullock’s and Macy department stores are located.
Macy also has 11 of its 12 I. Magnin stores in the state. Federated’s Bloomingdale’s division has already announced plans to expand into Southern California.
A marriage between Macy and Federated would put more pressure on the Broadway and Robinson-May department store chains. The combined company will have greater ability financially to remodel its stores and to keep it filled with fresh merchandise, said John Golisch, a partner specializing in retailing for the Arthur Andersen & Co. accounting firm.
Golisch applauded the merger. He said it reflects a broad pattern in retailing of “consolidation into bigger, stronger companies with more clout.” He said the deal could lead to job cuts, however, as the merged company cuts back office workers from overlapping business operations. At the same time, he said, that would reduce the company’s costs.
Approval of the merger agreement by Macy’s board, however, is not certain. The famed department store operator had rebuffed Federated’s initial overtures more than six months ago in a bid to remain independent. However, Macy has become more receptive under pressure from creditors, which includes Federated. Macy’s board was also said to have been impressed with some of the merger plans presented last week by Questrom.
However, Macy’s board said it was not comfortable with some aspects of Questrom’s proposal, including possible antitrust problems in areas where both companies compete. Federated officials have addressed those concerns in its most recent merger proposal, say industry sources.
The deal must also win the support of an important group of Macy creditors, its bondholders. Their opposition could prevent the bankruptcy judge from approving plans to get Macy out of bankruptcy court.
“Macy and Federated in less than a month have gone from being the Hatfields and the McCoys to being the Romeo and Juliet of the retailing,” said Alan Millstein, a retailing consultant in New York and publisher of the Fashion Network Report newsletter.
Millstein said the deal will be “greeted with Hosannas by Wall Street,” but will be bad news for many consumers.
“Someone will have to pay for the acquisition, and it’s going to be the consumers, who will wind up paying higher prices,” he said.
But for Southern California, Millstein said, the deal likely will mean the “resurgence of the fashion image of Bullock’s.”
A merger represents a reversal of fortunes for both retailers. Federated once owned Bullock’s and I. Magnin until it was acquired by Canadian businessman Robert Campeau. After the Campeau takeover, Federated sold its I. Magnin and Bullock’s store groups in California to Macy in 1988.
Although Federated once had a California presence through Bullock’s, none of its chains--Bloomingdale’s, Abraham & Strauss, the Bon Marche, Burdines, Goldsmith’s, Jordan Marsh, Lazarus, Rich’s and Stern’s--have stores in California.
Times staff writer George White contributed to this story.
