NEW YORK -- With R.H. Macy & Co. showing improvements in sales and earnings, bondholders and preferred shareholders are expected to renew their push to delay the firm's exit from Chapter 11.
At the same time, Macy's creditors began meeting Monday with court-appointed mediator Cyrus R. Vance and will continue those sessions all week. Federated Department Stores, which is trying to take over Macy's, said it will meet with Vance on Thursday or Friday in its capacity as a Macy's creditor.
But Federated will not present its proposal until next week, according to sources close to the company.
Meanwhile, a look at Macy's latest results shows that sales are ahead of plan and earnings before interest, taxes, depreciation and amortization (EBITDA) are running at an annual rate of $600 million, according to a source close to Macy's board.
"This means the company is worth well above the $3.6 billion used in Macy's preliminary plan," he said. "The Macy's franchise is continuing to improve and if allowed to run through another Christmas before locking in a plan, everyone should come out ahead. The bondholders and other unsecured creditors would get a better return and there may also be something for the preferred shareholders."
The source estimated that the value of the company could approach $5 billion if given another Christmas.
"The vultures are trying to steal the company. Valuations presented by The Blackstone Group and Merrill Lynch [investment bankers for Macy's] are both low-ball values," he added.
If Macy's is forced to come out before full value is realized, he said, it would not reflect favorably on Judge Burton R. Lifland, who prides himself on giving the debtor and creditors the best deal available, the source said.
"How would it look if six months after Macy gets out of Chapter 11, Fidelity Investments, which paid about $300 million for its $600 million claim in Macy's, announces that its stake is worth $2 billion? I don't think that would sit well with Lifland," he said.
As for Federated, the source said: "Federated would have to pay a lot more than the $3.6 billion if it wants to do a deal. A bid of $3.7 million wouldn't do it. Macy's is an improving situation and time is on its side."As it stands, Macy's is planning on emerging from Chapter 11 in January 1995. Its plan or reorganization is expected to be filed in court this summer, with hearings on the plan and on a disclosure statement to follow.
Macy's store-for-store sales increased 14 percent in March, putting it somewhere in the middle of its peer group. After months of cutting costs and investing in fresher presentations and more popular lines, Macy's is just starting to see the results, bond analysts have said.
But they also said that while the current strong numbers bode well for Macy's, a solid performance through back-to-school and holiday is needed before Macy's is in the clear.
When Federated meets with mediator Vance this week, sources say, it will merely listen to the proposal Macy's has put on the table and let Vance know what it thinks of the deal.
Federated had been put on hold by Vance about two weeks ago to give him and Macy creditors time to consider the Macy plan.
As originally outlined, the Macy proposal calls for bondholders and unsecured creditors to get 25 cents to 32 cents on the dollar.
There was no provision for preferred or common shareholders.
Judge Lifland threw out a motion by a group of shareholders, principally holders of common stock, seeking representation at the Macy bargaining table. The judge said there was not enough value to warrant common shareholder representation.
Preferred shareholders -- including current and former members of the Macy board -- have not given up on the possibility of a sufficiently high valuation to give them some return, possibly rights to buy stock in the reorganized Macy at bargain prices.
But unless there can be a showing that Macy's is worth considerably more than $3.6 billion, there is little chance that these holders will get anything.
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