By and  on May 31, 1994

 NEW YORK -- Federated Department Stores' attempted takeover of R.H. Macy has caught the eye of the Federal Trade Commission.

The FTC, in what sources said Friday could be the start of an antitrust probe, sent out letters to Federated and Macy's two weeks ago requesting information regarding their operations.

The letters reportedly inquired about the locations of Macy's and Federated stores, and the areas in which they compete. The FTC, said sources, is curious about the impact a merger would have on suppliers, retail prices and consumers.

Macy's has argued a merger would be disruptive to the marketplace, while Federated has contended it would benefit consumers by providing more cost-effective operations, leading to lower prices in the stores.

In addition, Cyrus R. Vance, the court-appointed mediator in the Macy bankruptcy case, has been seeking a meeting with Federated on the antitrust issue. According to a Federated spokeswoman, a meeting was scheduled but then canceled by Vance.

Vance could not be reached for comment. The FTC would not comment on the situation.

"Traditionally the agencies have not gotten too exercised about two retail stores merging," said Daniel Margolis, an antitrust lawyer with Patton, Boggs & Blow in Washington. "But this is a little unusual since we're talking about such large chains, with so many stores in the same cities."

Federated operates Bloomingdale's, Stern's and Abraham & Straus stores that compete with Macy's stores in the New York metropolitan area. There are also overlaps in the Atlanta and Texas markets.

A merger of Macy's and Federated would create the largest traditional department store group in the country, with sales of $13.5 billion. May Department Stores Co. is currently the biggest, with annual sales of about $11 billion. While J.C. Penney Co. and Sears, Roebuck & Co. are larger retail concerns, they are generally considered national chains.

In recent years, the federal government has not been active in retail antitrust cases because it has examined such mergers in the context of the overall retailing industry, rather than breaking it up into smaller markets such as department stores, mass merchants or specialty chains, where head-to-head competition is more apparent. A Macy's and Federated merger would represent just a small fraction of the market. Wal-Mart's $67 billion in volume dwarfs a Macy-Federated combination.The information requested by the FTC may be just a routine request or the beginning of a major inquiry signaling a tougher attitude on antitrust issues by the Clinton Administration, compared to its predecessors, observers note. The last time a major retail merger was thwarted by antitrust regulators was in the late Seventies when Carter Hawley Hale Stores attempted to acquire Marshall Field & Co. Field's sued CHH under antitrust laws and was able to fend off the unwanted suitor.

Federated wants to take over Macy's through filing a reorganization plan in Macy's Chapter 11 proceeding. But Macy's has its own plan and wants to emerge from Chapter 11 as an independent company. Some sources said that Macy's has already responded to the FTC by providing information.

A commission attorney said FTC officials do meet with representatives of companies that are targeted in a hostile takeover if they believe the company can provide information on possible antitrust problems.

"The company would have to argue that if they are acquired, it would lessen competition and here's why that's a problem," the attorney said.

As for the possibility that the FTC would block a Macy's-Federated merger, a Commission spokeswoman said it would be tough to make a case that a merger would harm consumers because there are so many shopping options these days. Retail observers noted that the FTC could also investigate mergers after they occur and force the acquiring company to dispose of properties.

--With contributions from CAROL EMERT, Washington

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