By  on June 1, 2005

NEW YORK — Shareholders of May Department Stores and Federated Department Stores have a lot to chew on before their July 13 meeting, when they will weigh in on the companies' proposed $17 billion merger.

Last week, the retailers filed a massive, 187-page (plus annex), joint proxy statement/prospectus detailing the planned merger, pro forma sales of the merged company and risk factors of the deal, which include hefty payouts to executive officers of May if they are let go after the merger.

The severance payments to 13 current executive officers of May total $46.8 million, according to a filing with the Securities and Exchange Commission last Friday. John Dunham, chairman and chief executive officer of May, and Dean Wolfe, executive vice president of the retailer, have in place cash severance and noncompete payouts worth $9.4 million and $6.1 million, respectively, in case they are terminated following the merger.

"In addition, the agreements contain provisions that in the event of termination of the executive by May other than for 'cause' the executive would be entitled to receive base salary until the later of the end of the executive's noncompete period and the end of the term of the agreement," the filing stated in regard to Dunham and Wolfe.

Aside from the severance payouts, Dunham and Wolfe would have consulting contracts with May, the filing revealed. "Each contract commences at the end of the term of their employment agreement and extends for a period of two years," the retailers said in the proxy.

Dunham's contract offers a consulting fee worth $375,000 per year, while Wolfe's fee would be $450,000, and would "contain noncompete and nonsolicitation clauses," the filing said.

The retailers also warned shareholders in the risk assessment section of the proxy that "Federated may be required under the merger agreement to dispose of assets that account for up to $4 billion in annual net sales if required by governmental entities to obtain antitrust clearance for the merger."

The companies are still in the process of gaining antitrust approval.

Regarding pro forma profits and sales, the SEC filing estimated yearly net income of the combined entity would total $1 billion on sales of $31.1 billion. On the balance sheet, the retailers estimate total assets of $37.2 billion, and long-term debt of $12.3 billion.The filing also said that Federated is funding the cash part of the deal "from cash on hand, cash from operations, borrowings under existing or new credit facilities, the issuance of long-term debt or other securities or a combination of the foregoing."

But the retailer also said it might have to sell some assets as well. "Federated may also sell a portion of its or May's credit card related assets and proceeds from such a transaction may be used to fund the cash portion, or to repay debt incurred to fund the cash portion, of the merger consideration," the companies said in the filing.

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