NEW YORK -- Federated Department Stores could acquire R.H. Macy & Co. with stock of the combined entity and very little cash because of Federated's track record, according to market observers.
The significance of that is Macy's creditors might be willing to gamble on the upside potential of Federated stock and take it instead of cash, thus making a merger between the two retail giants less costly.
Although Macy's has been cool to the bid by Federated, its investors and creditors -- judging by comments some of them made privately on Tuesday -- are decidedly more receptive.
Federated stock, traded on the New York Stock Exchange, closed Tuesday at 22 7/8, up 1/8. It had gone up 2 points on Monday.
Federated became a player this week in the Macy reorganization proceeding by purchasing, for $449.3 million, a half interest in a $1 billion secured claim against Macy's from Prudential Insurance Co.
Federated said it would like to use its position to work out a merger with Macy's but so far, Macy's has been less than thrilled by the prospect.
Mark Levin, senior vice president of Canyon Partners, a specialist in distressed securities, said Tuesday that with Federated's record of being in and out of Chapter 11, bondholders would probably welcome the chance to swap Macy's bonds for equity in a Federated-Macy combination.
"Bondholders would look for a premium [in stock] over the current market prices for the bonds, but they would be willing to accept equity in the combined company for Macy's debt," Levin said.
The most senior Macy bonds maturing in 1998 are selling at 50 cents on the dollar, the issue maturing in 2002 is selling at 24 cents on the dollar and the zero coupon bonds at the bottom of the pile are selling at 8 cents on the dollar. In all, Levin estimates the market value of the bonds at $300 million and he expects Federated would be willing to pay more than that in stock.
Federated might also be able to convert its position as mortgage holder on 70 Macy stores into cash by selling the mortgages to another lender, he said. This would give it additional flexibility, according to Levin.
Steve Aoki held a presentation, a runway show and outdoor concert for his men's line Dim Mak. Here's a look from his spring 2018 collection, which was titled "Paradise Found." #wwdfashion #wwdmens (📷: George Chinsee)
"It's really hard sometimes. I think I have a reputation for being really tough and aggressive and pushy but I really am a very shy person who wants to be liked, and that's the conflict constantly. There's something that takes hold - I want people to like me, I don't want to be mean - but if I see something that just cries out to be answered, I go for it," says renowned NBC News correspondent Andrea Mitchell. (📷: @axeldupeux)