By  on February 3, 2005

NEW YORK — If the endlessly speculated and long-awaited merger of Federated and May doesn’t happen, share valuations of the retailers could be affected.

May Department Stores’ stock price rallied nicely over the past month, based predominantly on rumors the company will be acquired by rival Federated Department Stores. But should talks between the two retailers fail, don’t expect May’s stock price to remain at such lofty levels (on a historical basis), some experts say.

That’s unless May cans the idea of a merger, and hires a new chief executive with specific turnaround experience — a move May investors would likely applaud.

If a May-Federated merger does not materialize, said Paul Nolte, director of investments at Hinsdale Associates, May’s stock price could give back the over 20 percent gain it has seen in the past two weeks. This is because the stock “really has been an underperformer…it’s been kind of sideways to down,” he said.

For much of the last two years, May shares have hovered at roughly $20 to $29. Since Jan. 12, however, when heavy speculation about a union between the two companies emerged, the stock added 21.6 percent, moving as high as $36.45 in intraday trading, and sometimes on unusually high volume. The stock ended Wednesday down 0.6 percent to $33.47.

On the other hand, Federated shares, which have traded between $55 and $58 in the last two weeks, could rise on investors’ relief that it would be “business as usual,” predicted Nolte, should merger talks stall. Then, the pressure would be off Federated to make the deal work.

“That [pressure] may be what is keeping the stock under wraps at this point,” Nolte added.

Currently, Federated’s stock is trading where it was before the potential merger was announced. “A lot of people took a look at the announcement and said ‘uh-oh,’” said a buy-side analyst who preferred not to be named. The initial reaction caused a slight dip in share price.

By late January, however, investors realized, “there’s a lot of synergies there and said ‘this would not be such a bad thing,’” the analyst said. Consequently,  the share price ticked back up.

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