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Weekend of Decision: May Co. Board to Meet On Merger in New York

The directors of May Department Stores and Federated Department Stores will meet through the weekend and merger is on their mind.

NEW YORK — Merger talks between Federated Department Stores Inc. and May Department Stores are expected to take a crucial turn this weekend as members of both boards are converging on New York.

First, the Federated board is scheduled to meet today, which reportedly will take place in the Macy’s Herald Square boardroom. It is a regularly scheduled board meeting, sources said.

Meanwhile, directors from the May board are flying into town for meetings through the weekend, though not all are from outside New York. One source said these May board members will meet with Skadden, Arps, Slate, Meagher &through the weekend, though not all are from outside New York. One source said these May board members will meet with Skadden, Arps, Slate, Meagher & Flom, May’s lead attorneys on acquisitions, during the weekend.

Presumably, Federated and May officials will get together to hash out terms of a deal and talk about the future, but the source could not confirm that.

Last year, Skadden represented the St. Louis-based May in its deal to buy Marshall Field’s from Target for $3.4 billion.

A May spokeswoman declined to comment on any board meeting. Federated officials could not be reached for comment.

Federated’s headquarters are in Cincinnati, but Terry Lundgren, the retailer’s chairman, chief executive and president, is based at Macy’s Herald Square.

Federated and May have been closing in on a price. Wall Street is apparently expecting the retailers to strike a deal, with the stock of May trading heavily in recent days. On Thursday, May’s stock closed at $34.10, rising 12 cents. The stock’s 52-week high is $36.48, and its low is $23.04. Federated’s stock closed at $57.01 on Thursday, rising 39 cents. Its 52-week range is $42.80 to $59.91.

As previously reported, Wall Street analysts have written in research notes that they expect a merger and that the takeover price would probably be at just under $40 a share.

Sources close to the May board have said the directors are anxious to strike a deal with Federated for several reasons. May has been maintaining profitability at a level that’s not far from other major department store chains, but its profits used to be far greater and have been shrinking for several years. Profits peaked in the late Nineties, with an impressive $940 million net, but for 2004 came in at $524 million. Market share and sales volume have also been shrinking.

This story first appeared in the February 25, 2005 issue of WWD.  Subscribe Today.

Federated generates more profit than a depleted May — $689 million last year — and would benefit greatly by getting into territories where it’s been underpenetrated and through cost savings, estimated to be in the hundreds of millions, primarily through staff cutting and operational consolidations.

Furthermore, May divisions lack the fashion appeal of Federated’s Macy’s and Bloomingdale’s divisions, and for too long adhered to a formulaic approach of matrix buying, reliance on the same big brands that can be found all over the mall, and heavy-duty price promoting. The company also lagged in private label development.

May has been operating without a chief executive since the departure of Gene Kahn last month. It’s believed that finding a strong merchant to revive the retailer would be challenging, considering the lack of available talent in the industry, and that a turnaround would be tough, requiring years of hard work. There have been published reports that May pulled the plug on the ceo search, figuring that selling the company would be a much simpler solution than trying to turn it around.

It is also believed that in seeking a buyer, May has only one real alternative —  Federated, which has the wherewithal and desire to merge. The two chains have held merger discussions on and off three other times since the Eighties.

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