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DEPARTMENT STORES Federated agrees to purchase May



Published: Mon, February 28, 2005 @ 12:00 a.m.



WASHINGTON POST

NEW YORK -- Federated Department Stores Inc., owner of Macy's and Bloomingdale's, has agreed to acquire May Department Stores Co., operator of Lord & amp; Taylor and Kaufmann's, for about $10.4 billion, executives close to the talks said Sunday.

The deal is to be announced today.

The combination of May, with 501 stores, and Federated, with 459, joins the nation's two biggest department store chains into a retailing colossus. The deal must still be approved by shareholders and regulators. The combined company might close stores in certain markets such as the mid-Atlantic and California, but regulators are not expected to block the deal, according to analysts.

Locally, analysts say the news would generally be good for employees and customers of May-owned Kaufmann's, the only store either retail giant owns in the area. Without overlapping May and Federated stores, there is less chance that one would be closed. And Federated is considered the more aggressive and successful merchandiser, bringing the fashions and style to its Bloomingdale's chain. Kaufmann's could get a similar makeover, some say.

Local stores

Kaufmann's has stores at the Eastwood Mall in Niles, Southern Park Mall in Boardman and Shenango Valley Mall in Hermitage.

Sources, who spoke only on the condition of anonymity because the deal had not yet been announced Sunday, said the boards of the two companies approved the deal over the weekend after days of often contentious negotiations over how much Federated would pay for May. Sources said the two sides agreed Federated would pay between $35 and $36 for each May share. That amount will come in a mixture of Federated stock and cash. May shares, which had been rising on reports of a possible acquisition, closed at $35.35 Friday.

Federated chief executive Terry J. Lundgren is expected to lead the combined company. The two companies discussed merging in the past, but talks broke down over several issues, including who would serve as chief executive. That issue disappeared when May ousted chairman and chief executive Eugene S. Kahn in January.

Venerable names

The deal would bring together some of the most venerable names in retailing, from May's Marshall Field's and Lord & amp; Taylor to Federated's Macy's and Bloomingdale's. Although their names are grand, their place in the retail world has grown more and more uncertain.

Mid-priced department stores companies such as May have been in a downward spiral, caught between fast-growing discounters with cheaper apparel, such as at Wal-Mart Stores Inc. and Target Corp., and high-end merchants with trendier fashions, like Neiman Marcus Group and Saks Fifth Avenue Inc.

Specialty stores, from the Gap to Williams Sonoma, have taken their own bites out of the department stores' clothing and home furnishings business.

Just three months ago, the struggling department store Sears Roebuck & amp; Co. merged with Kmart Corp. in an effort to expand outside the nation's malls.

"This industry has to consolidate," said Morgan Stanley retail analyst Greg Fowlkes. "There is no doubt in my mind that the trend will continue."

Reducing costs

Retail analysts expect Federated to cut administrative positions across May's divisions to reduce costs. "You wouldn't need two buyers to deal with Ralph Lauren," said David E. Griffith, an analyst at Tradition Asiel Securities Inc.

Federated, which struggled throughout the late 1980s after becoming the target of a debt-financed takeover, has emerged as a retail powerhouse over the past five years.

Lundgren is widely credited with the chain's success. Since his appointment in 2003, he has expanded the chain's move into high fashion and introduced customer-friendly store touches such as self-service scanners and prominent signs to speed up shopping.




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