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.
“I see things on the hanger and I’m, like, ‘I never knew that color worked on me.’ It’s things you necessarily wouldn’t choose to wear, but once you put them on, you see why Janie is who Janie is." — Lily Collins on working with former "Mad Men" costume designer, Janie Bryant on creating looks for her role as Celia Brady's in Amazon series, "The Last Tycoon." 📸@jilliansollazzo #wwdeye
EXCLUSIVE: Sarah Rutson has been tapped to Build New American Fashion Group. The parent of Joie, Equipment and Current/Elliott hired the merchant to rev up its brands and expand its portfolio into designer, beauty and lifestyle categories. Read more on WWD.com, link in bio. #wwdfashion
Michael Kors' $1.3B Jimmy Choo deal has the company squaring off with Coach Inc. as both seek to build American powerhouses. Coach bought Stuart Weitzman in 2015 and Kate Spade just two weeks ago, but Michael Kors' acquisition may be putting pressure on its rival in the new push for scale. #wwdnews (📷: George Chinsee)
Meet actress Lucy Boynton, who plays opposite Naomi Watts in the recently released Netflix series "Gypsy." Boynton stopped by WWD to talk about her upcoming projects and her nomadic lifestyle. Get all the details on WWD.com. #wwdeye (📷: @dandoperalski)