RETAILING Merger talks are over between May, Federated

Media reports suggest the two can't agree on price.
ST. LOUIS (AP) -- Merger talks between May Department Stores Co. and rival Federated Department Stores Inc. reportedly have ended after the two retailers could not agree on how much Federated would pay for May.
Negotiations broke down last week between Cincinnati-based Federated -- owner of the Macy's and Bloomingdale's chains -- and St. Louis-based May, operator of Lord & amp; Taylor, Famous-Barr, The Jones Store, Filene's and other regional department stores, The Wall Street Journal reported Tuesday, citing unidentified people familiar with the matter.
The May board was prepared to negotiate a deal, with May's interim chief executive John Dunham talking by telephone with Federated CEO Terry Lundgren before the dialogue ended after the price emerged as the sticking point, the Journal said.
The story made no mention of how far apart the two sides were.
May and Federated declined to comment Tuesday.
May saw sales slump
May fell in early trading Tuesday on the New York Stock Exchange but rebounded by early afternoon, gaining 12 cents to $31.98. The shares have traded in the range of $23.04 to $36.48 over the past year. Federated shares gained 89 cents to $58.14 on the NYSE.
Speculation about a Federated-May hookup has simmered for weeks, and the breakdown in talks comes on the heels of May's announcement last week that its fourth-quarter earnings slid on weak sales at stores open at least a year. Earnings fell short of Wall Street expectations.
That earnings release was the first since last month's abrupt departure of chairman and CEO Gene Kahn, who resigned just seven months after helping May acquire Target Corp.'s Marshall Field's department stores and nine Mervyn sites for $3.24 billion -- a price many analysts called too steep by several hundreds of millions of dollars. May beat out Federated in that bidding.
In last week's conference call with analysts, May executives offered no detailed update on the search for a successor to Kahn, who analysts said had been criticized by some within the company for micromanaging the business and not developing a clear vision for the company.
Dunham said only that an announcement on Kahn's replacement would be made when the board makes its decision. He gave no time frame.
Executives also sidestepped questions about talks with Federated.
Some analysts have suggested that a Federated-May hookup -- uniting two of the nation's largest department store chains into a behemoth with nearly 1,000 stores -- would make sense, creating a more efficient operation better equipped to go up against discounters.
Together, the companies also could wring savings out of their merged retail systems and gain buying clout, some analysts suggested.
Others questioned whether the two retailers would be a good fit. Juli Niemann of RT Jones Capital Equities in St. Louis cited "big cultural differences," with Federated more upscale and May always margin-oriented while lacking on the merchandising side.
With the apparent divide in talks between two companies that have grown through consolidation, Niemann questioned whether anyone other than Federated has the resources to acquire May -- or if the St. Louis-based company will separately selling off certain chains.
Regardless, she said, May's board "must get off the dime [and] get a new CEO who can really take May in a new direction, focusing on merchandising."
"He or she needs to be someone who can fight alligators and drain the swamp at the same time," she said. "I don't know who that is."
May's performance has lagged behind competitors like Federated and J.C. Penney Co. as it has failed to come up with a compelling merchandising vision under Kahn and consequently has resorted to aggressive price cutting to bring customers into the stores.
In the meantime, May said it has closed 25 of 32 underperforming Lord & amp; Taylor stores it had said it was jettisoning in 2003.

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