By and  on March 12, 2002

NEW YORK -- Wall Street's not buying the latest mega-merger talk.

Financial analysts and other market observers are less than convinced that the two predominate U.S. department store players -- Federated Department Stores Inc. and May Department Stores Co. -- will ever join forces to form an almost $30 billion giant, despite recent reports of talks between the two.

Accordingly, shares of Federated inched up 23 cents, or 0.5 percent, to close at $43.70 on Monday, while May Co.'s stock slid 16 cents, or 0.4 percent, to end the day at $36.48. Both issues trade on the New York Stock Exchange.

The possibility of such a combination was noted in these columns last month as the market considered the possibility of a sale of Dillard's following the Feb. 8 demise of founder William Dillard.

"I don't think the deal's going to happen -- ever," said Robert Buchanan, analyst at A.G. Edwards & Sons. In addition to having "way too much overlap," he said the two firms are "very competitive and, frankly, don't like each other."

With both firms losing market share to lower-cost providers such as Kohl's Corp., he noted, the merger topic is "bound to come up" despite its drawbacks.

Midwest Research equity analyst Jeff Stinson agreed that a May Co.-Federated combination is unlikely.

"There are a lot of cultural differences," he said, as well as the question of who would ultimately lead the combined business. Still, he cautioned: "When you look at the department store industry you can really never say never."

Despite May Co.'s greater market capitalization -- $10.69 billion at Monday's close, compared to Federated's $8.38 billion -- Stinson noted: "It's tough to say who would have the upper hand" at the merger bargaining table.

There are also other, possibly more easily digested, acquisitions for both firms to make.

Retail consultant Walter Loeb of Loeb Associates said: "I expect we'll see more consolidations in the future. In Europe, there is typically only one department store operating in each country. In the U.S.A., we still have too many. However, I believe that before the big players merge, you'll first see the smaller players be absorbed by the larger ones."

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