NEW YORK -- Federated Department Stores Inc. significantly raised the stakes for control of bankrupt R.H. Macy & Co. Monday by submitting a $3.8 billion revised reorganization proposal to mediator Cyrus R. Vance.

The plan increases the payout to trade creditors, bondholders and bank lenders.

The improved valuation, an increase from Federated's $3.51 billion proposal of April 29, tops the $3.67 billion value of the Macy plan that was also submitted April 29. Macy's latest proposal, also submitted to Vance on Monday, was only slightly revised, except for minor changes in the rights offering to bondholders.

Macy's, however, argues that its plan is actually worth $3.9 billion, based on rights and warrants to be issued by Macy's to bondholders and unsecured creditors.

These revised plans are believed to be the final offers in the mediation process.

However, after Vance submits the favored plan to Bankruptcy Judge Burton R. Lifland, Lifland will still have the option of allowing additional bids.

A source close to the unsecured creditors' committee said the Federated and Macy's plans are about equally attractive for unsecured creditors. He added that more time was required to thoroughly evaluate the offers.

But some bankruptcy experts said Federated's new proposal gives it an edge over Macy's in the battle for the bankrupt giant. They say Federated's key advantage is that its stock is easier to evaluate than a proposed new Macy's stock.

Federated might have another advantage in that it is proposing significant cost savings -- reportedly in excess of $100 million -- through the consolidation of various units.

In its new offer, Federated will value its stock within a range of $21 to $26 a share, an improvement on the $25-a-share arbitrarily set in its first proposal. In the last 52 weeks, Federated's stock has traded at a high of 25 1/4 and a low of 18.

Vance will now review both proposals, along with a third blueprint submitted by the bondholders. Vance met with Macy's on Monday and plans meetings with creditors as well for the rest of the week.

Vance could submit his recommendation for Macy's reorganization to Lifland as early as next week.In a statement, Macy's said it believes it now has a confirmable plan in hand.

The bulk of the increased payout by Federated will go to bondholders, who have voiced the loudest opposition to the Macy's and Federated plans to date. Bondholders offered their own revision of a proposal originally submitted last week. The bondholders revision allows for the conversion of Macy debt into cash.

The revised Federated plan increases by $105 million, to $180 million, the stock and warrants paid to bondholders upon confirmation. Bondholders would also be eligible for $90 million in stock upon exercising rights to purchase $450 million in Federated convertible debentures.

The revised Federated plan also gives secured bank lenders an additional $45.2 million payout. Unsecured creditors, including trade creditors, would receive $126 million payout in cash, stock and warrants, an increase of $78 million from Federated's original plan.

Here's how the Macy's and Federated proposals stack up:

  • For general unsecured creditors: Macy's proposes to pay $146.3 million in cash, warrants and stock, including approximately $20 million in claims on goods shipped within two weeks of the Chapter 11 filing, which have to be paid in full. Federated proposes to pay $126 million in cash, warrants and stock, not including claims just prior to bankruptcy.
  • For bondholders: Macy's offers $165 million in stock and warrants plus a rights offering for up to 25 percent of Macy's post-Chapter 11 stock. Federated is offering $180 million in stock and warrants plus $90 million in stock tied to the purchase of debentures.
  • For secured bank lenders: Macy's is offering $1.63 billion in cash and stock. Federated is offering $1.685 billion in cash and stock.
Allen Questrom, Federated's chairman and chief executive, said, "We said from the beginning that our intent was to pursue a possible business combination with Macy's, and we are convinced that doing so will create long-term value for Federated's existing shareholders."

load comments
blog comments powered by Disqus