Ian Ritter is national online editor for GlobeSt.com/RETAIL.
CINCINNATI-Federated Department Stores' $11-billion acquisition of May Department Stores will likely result in the disposition of some of the purchased units, said Federated executives yesterday without revealing numbers. Those closings and other charges will likely cost Federated $1 billion over three years.
Banc of America Securities retail analyst Dana Cohen has said the merger could result in the closing of 50 stores, a relatively small number for what will become a 950-store empire. REIT analyst Ross Nussbaum, also at Banc of America, points out in a report that 10% of malls are owned by REITs. Says Nussbaum: "We expect the mall REITs to see little to no negative short-term impact and to benefit longer term from this merger."
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The acquisition will also pair Federated's upscale Bloomingdale's chain with May's Marshall Field's and make the company more competitive with Neiman Marcus and Saks Fifth Avenue, says Wendy Liebman, an analyst at consulting firm WSL Strategic Retail. The deal "would potentially give the corporation a better chance of picking up all those high spending 'affluents' that are now driving much of the US department store business," she says.
Federated executives said during a conference call yesterday that some of May's stores would be absorbed into its Macy's and Bloomingdale's chains but did not say how many. They also said they were not sure what to do with May's bridal and tuxedo retail chains. "We don't really know about that business yet, but we intend to learn about it," said Terry J. Lundgren, Federated's chairman, CEO and president. May owns 239 David's Bridal stores, 449 After Hours Formalwear stores and 11 Priscilla of Boston stores.
Federated will assume $6 billion in May debt as part of the transaction as a whole. May shareholders will receive $17.75 per share in cash as well as 0.3115 shares of Federated. Completion of the deal hinges on regulatory and shareholder approval. Officials at the companies expect to close the merger in the third quarter.
Federated will enter 15 new states as a result of the acquisition and have stores in 64 of the country's top 65 markets. "We will be better able to meet competitive challenges in the retail marketplace and better able to realize growth opportunities over the longer term," says Lundgren, in a statement. Company officials expect the company's same-store sales to increase from 2% to 2.5% after the deal.
The deal has been one of the worst-kept secrets in the industry so far this year. Published reports and analysts have speculated about the merger in a time of increased consolidation by retail companies. Kmart and Sears are merging in an $11-billion deal that is set to close in March. Jones Apparel acquired Barneys in a $400-million transaction last year. And last year May bought Marshall Field's for $3.2 billion from Target, which also sold its Mervyn's chain to a group of private investors for $1.2 billion.
Federated, based here, operates about 450 stores in the Macy's and Bloomingdale's chain, as well as regional department stores that will become Macy's by March 6. May's 491 department stores are under the names of Famous-Barr, Filene's, Foley's, Hecht's, Kaufmann's, Lord & Taylor, L.S. Ayres, Marshall Field's, Meier & Frank, Robinsons-May, Strawbridge's and the Jones Store.
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