By and  on May 23, 1994

NEW YORK -- Federated Department Stores said Sunday that although Burton R. Lifland, chief bankruptcy judge, has specifically directed R.H. Macy & Co. to file its reorganization plan, Federated will continue to meet with Macy's creditors.

On Friday, Lifland's directive to Macy's in effect appeared to temporarily toss aside proposals by its suitor, Federated, and by bondholders, as inadequate.

Lifland's decision triggered wide speculation that Macy's will file a plan within four to six weeks, well before its exclusivity period expires on Aug. 1. In its statement, Federated said, "We believe our May 9th reorganization proposal, and the possible enhancements discussed with creditors last week, provides more value to all creditor constituents than does Macy's stand-alone proposal.

Federated also said it will continue to meet with Macy's creditors "in an effort to develop a plan of reorganization that will maximize recoveries by all creditors."

[On Friday, prior to its annual meeting, James M. Zimmerman, president, of Federated, called the company's Macy bid a "win-win situation."] Allen Questrom, Federated's chairman and chief executive officer, said, "Our primary objective when we entered the Macy reorganization case was to create a $14 billion department store operation that would create substantial synergy values through operating efficiencies, geographical diversification and increased customer service and value.

"While we recognize that there necessarily can be no certainties in Chapter 11, we remain hopeful that we can work through the bankruptcy process to accomplish our objective."

Meanwhile, exclusivity gives Macy's the advantage of filing a plan in bankruptcy court before any other party. This holds appeal for creditors who want a payout as early as possible.

A reorganization plan is a definitive document outlining the reorganization strategy. The proposals, called term sheets, are truncated versions of reorganization plans.

Lifland's directive does not preclude Federated or some other party from submitting a competing plan, and for that reason, Cyrus R. Vance, the court-appointed mediator, will continue the mediation process. However, any competing plan would have to be clearly superior to the Macy filing for the court to consider it. On Friday, Vance issued a short statement saying he had met with Lifland, who is presiding over the Macy Chapter 11 proceeding, and that Lifland is "of the view that substantial progress has been made in the mediation process." On that basis, the statement said, Judge Lifland has directed Macy's to file a plan as soon as possible.

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