Welcome to the Business Journal Archives
Search for articles below, or continue to the all new BusinessJournalDaily.com now.
Search
Federated and May Department Stores Announce Merger
"CINCINNATI -- Federated Department Stores Inc. and The May DepartmentStores Co. have entered into a merger agreement, officials announcedearlier today. Under the terms of the agreement, each share of May,which is headquartered in St. Louis, will be converted into the rightto receive $17.75 per share of cash and 0.3115 share of Federatedstock.Based on the 10-day trading average of Federated stock as of Feb. 25,2005, this equates to a value per share of $35.50, or $11 billion intotal equity value. In addition, Federated will assume May debt thatwas approximately $6 billion at year-end, for a total consideration ofapproximately $17 billion. As part of this transaction, Federated has committed to increase its annual dividend to $1 per share. The deal, which was approved by the boards of directors of bothcompanies yesterday, will establish Federated as a $30 billion nationalretailer whose economies of scale and scope of operations -- stores in49 states, Guam, Puerto Rico and the District of Columbia -- willenable it to compete more effectively in the highly competitive retailsector, according to Terry J. Lundgren, chairman, president and chiefexecutive officer of Federated.Completion of the deal is contingent on regulatory review and approvalby the shareholders of both companies, a process that is expected totake several months. The transaction is expected to close in the thirdquarter of 2005. Once consummated, Federated will operate more than 950 departmentstores, along with approximately 700 bridal and formalwear stores. Inaddition, 15 new states, mostly in the nation's heartland, will belayered onto Federated's existing 34-state operating base, withrelatively little overlap between the companies' locations. Storesunder the Federated umbrella include Lazarus-Macy's, which are beingconverted to the Macy's name effective March 6, and Bloomingdale's. MayCo. stores include Kaufmann's and David's Bridal, both of which havestores in the Mahoning and Shenango valleys. The transaction is expected to be accretive to Federated's earnings pershare in 2007, Lundgren said. Federated expects to realizeapproximately $450 million in cost synergies by 2007, resulting fromthe consolidation of central functions, division integrations and theadoption of best practices across the combined company. In addition,the company anticipates approximately $1 billion in one-time costsrelated to the acquisition and integration, spread out over athree-year period beginning in 2005. "In today's retail environment, competition comes from everyconceivable retail format," said John Dunham, president, actingchairman and CEO of May's. "To succeed, we have to operate moreefficiently and compete more effectively against players at all levelsof the retail demographic. There is no question that this is a bold andexciting move, and one I believe will have a positive impact oncompetitive retailing for American consumers in the longer term." Although Federated plans to merge May's St. Louis corporateheadquarters functions into its own Cincinnati and New York corporateoffices, beginning this year, its intention is to make St. Louis theheadquarters of one of the major operating divisions going forward inorder to take advantage of the considerable talent pool that existsthere. Federated also plans to honor May's extensive philanthropiccommitments to the communities in which it operates, and to continuethat practice, officials said. While no division consolidations or store name changes are plannedbefore 2006, Federated said it is likely that most of May's regionaldepartment stores ultimately will be converted to Macy's. "We have hadconsiderable success in re-branding our own regional stores as Macy's,so obviously we anticipate continuing this strategy to some extent withour new stores," Lundgren said. "Operating regional stores primarilyunder one brand means we can advertise nationally, unlike regionalretailers, which is more cost-effective."Among the benefits to customers arising from the acquisition, Lundgrencited the capacity to lower costs through synergies; the ability toengage in national marketing initiatives; the potential to expand theprivate brand merchandise lines of both companies; a rollout ofFederated's successful reinvent initiatives to May's department stores;and the ability to expand customer loyalty programs and offer bridaland gift registries to a national customer base. "For shareholders andemployees, joining together means we will be better able to meetcompetitive challenges in the retail marketplace and better able torealize growth opportunities over the longer term," Lundgren said.The merger is expected to lead to accelerated same-store sales growth."We expect the sales of the combined company to grow faster as a resultof certain changes we would make, including introducing the best ofFederated's and May's private brands into each other's stores androlling out our reinvent initiatives to May stores," Lundgren said. "Itwill take us until mid-2007 to implement all of the changes we wouldanticipate as a result of this acquisition, and we intend to take thetime necessary to do it right," Lundgren said. "Our first priority isto continue to execute in all of our stores this year, while we focusbehind the scenes on consolidating corporate and support operations." Federated has about 111,000 employees in 34 states. Founded 1929,Federated currently operates more than 450 stores in 34 states, Guamand Puerto Rico under the names of Macy's, Bloomingdale's, Bon-Macy's,Burdines-Macy's, Goldsmith's-Macy's, Lazarus-Macy's and Rich's-Macy's.Annual sales are $15.6 billion. May Department Stores has some 132,000 employees in 46 states. Founded1910, May operated 491 department stores under the names ofFamous-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, as well as 239 David's Bridalstores, 449 After Hours Formalwear stores, and 11 Priscilla of Bostonstores as of the end of fiscal 2004. May currently operates in 46states, the District of Columbia, and Puerto Rico. Annual sales are$14.4 billion."