Macy, Federated File Reorganization Plan : Retailing: Joint $4.1-billion proposal would pay back creditors and clear the way for a giant merged company.
R.H. Macy & Co. and Federated Department Stores filed a joint $4.1-billion reorganization plan Friday as the first step in a process to pay back Macy’s creditors and by year’s end bring Macy out of bankruptcy and merge the two companies into a retailing behemoth.
The plan calls for the creditors to be paid through a combination of cash, debt and issuance of approximately $1.1 billion worth of new stock in the combined company. It would settle about $4.7 billion in claims. It must be approved by Macy’s creditors, Federated shareholders and U.S. Bankruptcy Court Judge Burton Lifland.
A spokesman for the companies said that “the amount of creditor support across the board is very, very high . . . and we’re very optimistic” about gaining official creditor approval of the plan.
Additionally, the boards of the two companies must give formal approval to the merger. A Federated official said action on the merger agreement is expected within the next two weeks. The firms will also seek federal and antitrust approval.
The two companies said they expect to file a detailed operational plan by the end of August that will offer financial projections and spell out how they expect to combine their 341 department stores.
Officials of the two companies declined to offer clues about where cutbacks would be made or which stores might face closure. However, operations in the Northeast and in cities where the firms directly compete, such as New York and Atlanta, could take the brunt of the cuts.
The reorganization plan calls for different levels of payments to the different classes of creditors. Prudential Insurance Co., Fidelity Investments and Macy’s other most senior, secured creditors, who are owed nearly $1.6 billion, would be paid more than $2 billion in a combination of cash, new secured notes and new company stock.
Bondholders, believed to be the force that finally drove Macy into Federated’s arms, will be paid at a lower rate. Owed nearly $1.3 billion, they will get cash and stock valued at $482 million. Other unsecured creditors will get paid about 8 cents on the dollar.
Federated is a coalition of primarily regional chains, with 230 department stores in 26 states, under the names Bloomingdale’s, Abraham & Straus, Jordan Marsh, Burdines, Bon Marche, Goldsmith’s, Lazarus, Rich’s and Stern’s.
Macy, founded in 1858, operates 111 Macy and Bullock’s department stores, a dozen I. Magnin outlets and more than 100 other specialty stores. The Macy name holds a special cachet for shoppers nationwide, its position as a sentimental favorite stemming largely from the classic 1947 film “Miracle on 34th Street,” which romanticized Macy’s traditional Thanksgiving Day Parade.
Archrivals Macy and Federated got into trouble in the late 1980s, when each fell victim to the debt-financed mergers and takeovers craze that turned some of the country’s biggest corporations into junk bond junkies.
Macy’s tried unsuccessfully to buy Federated, a battle that weakened both firms.
By the time Macy’s entered Bankruptcy Court in 1992, Federated was emerging. It re-entered Macy’s life in January when it took over a $449-million chunk of Macy’s debt and said it wanted to talk merger. Macy’s capitulated two weeks ago.
