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Federated to Buy May for $11 Billion

Times Staff Writers

Writing a new chapter for the retail history books, Federated Department Stores Inc. agreed Sunday to buy May Department Stores Co. in an $11-billion deal with potentially sweeping consequences for Southern California, people familiar with the negotiations said.

Under the terms of the agreement, the sources said, the parent of Macy’s and Bloomingdale’s would pay $36 a share to add to its arsenal an assortment of stores, including the 47 in the Robinsons-May chain -- a name that might then disappear.

Marshal Cohen, chief retail industry analyst with the NPD Group research firm, called the potential union “a huge deal” that would rattle shoppers and suppliers alike.

“It changes everything,” Cohen said.

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The marriage of Cincinnati-based Federated and St. Louis-based May would be felt by shopping malls, clothing makers and media outlets that carry their advertising. The effects would be particularly significant in Southern California, where 28 malls are anchored by stores owned by both Federated and May and where vendors sew clothes for both chains.

“I think there’s going to be a lot of closures,” said Gregory Stoffel, owner of Gregory Stoffel & Associates, a shopping center consulting firm in Irvine.

Some of the Southland’s largest malls have overlapping anchors, including Glendale Galleria, Lakewood Center, Del Amo Fashion Center and Northridge Fashion Center. South Coast Plaza in Costa Mesa boasts a Macy’s, a Macy’s Men’s Store, a Macy’s Home Furniture store and a Robinsons-May.

Some analysts said the Federated-May combination would spell the demise of the Robinsons-May brand, one of the best known in Southern California retailing.

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“I’d be really surprised if Robinsons-May stayed as a name,” Stoffel said.

If Robinsons-May were to disappear, that could provide an opening for the likes of Wal-Mart Stores Inc. and Target Corp.

Art Coppola, the president of Santa Monica-based mall operator Macerich Co., which owns 17 shopping centers with both Federated and May stores, described the potential deal as “an absolute windfall” for Southern California shoppers and a plus for his company, because failing stores typically are replaced by those that thrive.

Analyst Robert Buchanan of A.G. Edwards & Sons predicted that the new company eventually would operate under the banner of either Macy’s or Bloomingdale’s, which are national names.

Federated said last September that it would put the Macy’s label on all 184 of its regional department stores, which include Burdine’s and Rich’s.

But analyst Cohen figured Federated would preserve some Robinsons-May stores, at least for a while.

“I don’t think they bought a lot of stores to just get rid of them,” he said. “You don’t want to go black with so many locations. That’s a pretty risky proposition.”

The acquisition would create a department store company with nearly 1,000 locations and annual revenue of about $30 billion. It would, however, be smaller than Wal-Mart Stores Inc., which had $262 billion in revenue last year.

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Only Kmart Holding Corp.'s planned $11.5-billion purchase of Sears, Roebuck & Co., a union that shareholders will vote on next month, would create a larger entity than would the Federated-May deal.

The announcement of the pending union was no surprise. Federated and May have been in on-again, off-again talks for some time. Both companies declined to comment Sunday. The buzz, however, has been driving up the price of May’s shares in recent weeks.

May stock closed Friday at $35.35 on the New York Stock Exchange, a three-month high and almost 13% higher than its close Jan. 19, the day before the Wall Street Journal reported that preliminary talks were underway. Federated’s stock ended the week at $56.79, 29 cents lower than its close Jan. 19.

Other mall operators that would be affected by the acquisition include General Growth Properties Inc., which owns 10 Southland malls including Northridge Fashion Center and Glendale Galleria.

Australia-based Westfield Group owns eight Southland malls with both chains as anchors, including Westfield Shoppingtown West Covina, Westfield Shoppingtown MainPlace in Santa Ana and Westfield Shoppingtown Palm Desert. Simon Property Group Inc. owns eight malls in the region, including the Shops at Mission Viejo and Brea Mall.

Vendors also will be tossed off-center by the shift, including many in Southern California, home to the largest apparel-making hub in the nation. Some say many manufacturers would take a hit, but others say the sting might not be so bad.

“If only Federated is going to be left, they’re going to need to buy enough to supply the whole operation so, in a way, it’s almost like selling to two of them,” said Moshe Tsabag, owner of Hot Kiss Inc. in Los Angeles. Sales to Federated and May stores have been “a very important part” of his business, Tsabag said.

Industry experts said consolidation would give a larger retailer more muscle when talking price with small vendors.

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For Federated, the additional leverage could actually help it do battle with discounters such as Wal-Mart and Target, which have been swiping business from department stores for years.

Robinsons-May, Macy’s and other midrange department stores have been struggling for more than a decade to beat back competition that has encroached from all sides, including from so-called category killers such as Bed Bath & Beyond. Over the last year, many consumers have been “trading up,” shopping at higher-end retailers such as Nordstrom and Neiman Marcus.

Federated -- which operates more than 450 stores in 34 states, Guam and Puerto Rico -- has been fighting back, improving its merchandise and keeping a tight rein on expenses.

May has had a tougher struggle. It has 491 department stores including the Foley’s, Lord & Taylor and Marshall Field’s chains, 449 After Hours Formalwear stores and 239 David’s Bridal sites.

May has been struggling to improve itself, including trying to attract younger customers by updating sections of its stores to look trendier and adding exclusive products.

While shopping center owners and apparel manufacturers would feel the pain if the combined retail giant shuttered some anchor stores or revised its vendor list, media outlets, including the Los Angeles Times, also would suffer if fewer stores bought ads.

“Mergers, in the short run, always hurt newspapers,” said Todd Brownrout, senior vice president of advertising for The Times.

Robinsons-May and Macy’s are two of the paper’s largest advertisers, and their spending is comparable, he said, declining to say how much the accounts are worth to the paper.

Times wire services were used in compiling this report.

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(BEGIN TEXT OF INFOBOX)

A national reach

Federated Department Stores and May Department Stores have operations in most states and combined annual sales of more than $28 billion.

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States with Federated stores

Stores: 459 in 34 states, Guam and Puerto Rico

California stores: 6 Bloomingdales, 106 Macy’s

Brands: Bloomingdale’s, Macy’s

Employees: 111,000

2004 net sales: $15.6 billion

2004 net income: $689 million

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States with May stores

Stores: 491 department stores, 678 bridal stores in 46 states and Puerto Rico

California stores: 47 Robinsons-May, 25 David’s Bridal, 62 After Hours Formalwear

Other brands: Meier & Frank, Lord & Taylor, Marshall Field’s, Filene’s, Kaufmann’s, Hecht’s, StrawbridgeOs, Foley’s, Famous-Barr, L.S. Ayres, Jones Store, Priscilla of Boston

Employees: 110,000

2004 net sales: $14.4 billion

2004 net income: $524 million

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Source: Company reports, Associated Press


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