By and  on January 21, 2005

NEW YORK — Will the fourth time be a charm?

Federated Department Stores and May Department Stores are said to be in merger talks once again after three previous attempts stretching back to the Eighties failed to produce a deal. But a merger, if completed this time, would rock the U.S. department store scene, giving Federated unparalleled power over vendors and mall operators alike.

News of the talks sent May’s shares up 9.2 percent on Thursday to $34.25. Intraday trading ranged between between $33.33 and $36.45, while the gain moved shares of May closer to its 52-week high of $36.48. Federated’s shares closed at $55.31, down 3.1 percent. Trading volume on May was 18 million, well above the three-month average of 2.4 million.

Analysts and observers agreed there is no guarantee an agreement will be reached — especially given a price tag for May estimated at up to $17 billion, including debt. A deal would further the consolidation of the U.S. retail sector seen in the Kmart agreement to buy Sears, and in the continued growth of mass behemoths Wal-Mart Stores and Target Stores.

A combination of Federated and May would create a $30 billion retailer with 1,000 department stores nationwide. Massive layoffs would likely result as Federated would consolidate headquarters, back office and buying operations. It also would likely result in the further disappearance of retail nameplates given Federated’s stated aim of focusing its operations on the Bloomingdale’s and Macy’s flags.

Reaction was divided as analysts and investors weighed the impact of Federated buying May, which was first reported in The Wall Street Journal Thursday. Meanwhile, sources in the banking industry said Federated was shopping around its credit card business, valued at $3.1 billion, while executive search firm Spencer Stuart has been retained to troll for May’s next chief executive.

“Federated has been embarked on a very constructive and effective growth-from-within strategy and it’s worked. Certainly there are risks involved in sustaining that growth by taking on a huge acquisitions project,” said Arnold Aronson, managing director of retail strategies, Kurt Salmon Associates. “There is a risk reward situation here that has to be carefully measured.”

One analyst on the buy side for institutional investors, who requested anonymity because of company policy, was more bullish on the deal.

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