Possible Macy's Takeover To Change Retail Picture

Bid by Federated comes only shortly after emerging from bankruptcy itself

THE current wave of mergers and acquisitions has hit the retail sector, as Federated Department Stores Inc. announced Sunday a bold move for control of R. H. Macy & Co. that could affect millions of shoppers and thousands of department store workers.

If Federated manages to absorb Macy's, the combined retail entity will become the largest department store operation in North America, beating out May Department Stores Company, the current United States retail giant. Close to 15 million Americans are employed in the retail sector.

``Federated's move gives it a large foot in the door in getting control of Macy's,'' says Kurt Barnard, president of Barnard's Retail Consulting Group. Even if courts were not to approve an actual merger, ``Federated's move makes it much more difficult for some other chain to come in and buy Macy's,'' he says.

As a creditor of Macy's, Federated will have a voice in what happens as Macy's tries to emerge from the bankruptcy reorganization it entered in January 1992. Federated's move represents a reversal of fortunes. In 1988, Macy's was an unsuccessful bidder to buy Federated. Federated, against its will, wound up being bought that year by Canadian businessman Robert Campeau, before his real estate and retailing empire unraveled and sent Federated into Chapter 11. Federated emerged in 1992.

A possible merger comes at a time of rising optimism within retailing. Cash register drawers were jingling at many stores over the holidays. Nationally, non-auto retail sales are expected to climb a little more than 6 percent during 1994, compared to a gain of about 5 percent in 1993; those numbers could change, however, since final year-end statistics are not yet available.

In some communities, such as the metropolitan New York City area, a Federated-Macy's merger would result in a virtual hammerlock on the department store trade. Federated, based in Cincinnati, had retail sales in its last fiscal year of slightly over $7 billion. It operates 219 stores in 26 states under the names Abraham & Straus, Bloomingdale's, The Bon Marche, Burdines, Goldsmith's, Jordan Marsh, Lazarus, Rich's, and Stern's. R. H. Macy & Co. had sales of slightly over $6 billion. It operates 207 stores under such names as Macy's, I. Magnin, Charter Club, and Aeropostale.

May Department Stores, based in St. Louis, had sales last year of $11 billion. Its best-known national chain is Lord & Taylor.

FEDERATED emerged from bankruptcy court proceedings in 1992. Macy's is currently in Chapter 11. Federated - at a price of $449.3 million - has purchased half of Prudential Insurance Company of America's secured claim against Macy's, with an option to acquire the other 50 percent.

While a Federated-Macy's merger raises antitrust considerations, it could also offer potentially large financial savings in operating costs to both companies, a factor that would presumably be appealing to both the bankruptcy court and to Macy's creditors, Mr. Barnard says.

The possibility of a Federated-Macy merger ``sends a shock to suppliers,'' says Janet Mangano, a retail specialist with Burnham Securities Inc., an investment house. ``There are increasingly fewer department stores in the US'' buying from suppliers.

Barnard says that Federated would be willing to ``make sacrifices'' in order to get control of Macy's, perhaps by selling off one or two of its other chains, or certain stores within its chains. Federated's Abraham & Straus, known here as ``A & S,'' operates a successful store right across the street from the large Macy's on Herald Square in midtown Manhattan. Opponents of a Federated-Macy linkup are expected to ask the bankruptcy court to quash the merger plan on antitrust grounds.

There were numerous mergers and takeovers within the retail sector throughout the 1980s, notes retail specialist Dean Ramos, of investment house Dain Bosworth Inc. in Minneapolis. Mr. Ramos says that the merger trend is not yet over. ``With the lack of growth in regional [shopping] mall development, one way to grow is for a chain to acquire another company.''

Nationally, few independent department store retailers remain. The most prominent is Seattle-based Nordstrom's, which, while publicly traded, is family controlled.

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