In the latest retail development, Mercantile Stores Inc. said Friday it's in negotiations with a third party on a possible merger or other business combination. The announcement sent the stock price...
In the latest retail development, Mercantile Stores Inc. said Friday it's in negotiations with a third party on a possible merger or other business combination. The announcement sent the stock price soaring 7 5/8 to 54 1/2 with 1.6 million shares traded. The leap followed a 6 5/8 surge Thursday on rumors of a possible deal with May Department Stores Co. Mercantile was trading at $33 a share in late July before takeover rumors heated up.
Until Friday, Mercantile had denied rumors it was up for sale. The company declined to disclose the identity of the other party.
May Co., widely expected to be the suitor, declined comment. May Co. stock dropped 5/8 Friday to 40 3/8.
Dillard Department Stores Inc., another potential buyer, said Friday it was not in negotiations with Mercantile. J.C. Penney Co. also said it was not interested.
Mercantile, based in Fairfield, Ohio, said no merger or other business combination had been authorized by its board and that there was no assurance a deal would take place.
The chain of moderate- to upper-moderate-price department stores is controlled by textile tycoon Roger Milliken and his family, which holds a 40 percent stake. Any merger would require Milliken's approval, but the 78-year-old patriarch is said to be ready to sell.
"It's not so much that he wants to sell, but he's doing estate planning, and the Mercantile stock has not been productive for him," said one retail source.
Milliken was not available for comment.
Analysts expect Mercantile to fetch about $58 to $62 a share at the acquisition price, placing its value at $2.1 billion to $2.3 billion. That's a price range the cash-rich May Co. could easily handle. And if it pulled off a deal, it would bring the department store giant into several medium-sized markets in the South and Midwest where it does not operate stores, such as northern Florida and southern Ohio, and into such cities as Mobile, Ala., Kansas City and Louisville.
"I think it will make a perfect fit," said retail analyst Walter Loeb, noting that there are few markets where both companies have stores.A deal would also enable David Farrell, May Co. chairman, to still say he's the boss of the biggest department store operation in the country. A May-Mercantile combination would produce a $13.7 billion empire. May Co.'s sales totaled $11.02 billion in 1993 while Mercantile reached $2.73 billion.
Without a deal, Farrell falls short of Allen Questrom, chairman of Federated Department Stores, which is merging with Macy's to form a $13.5 billion retail empire.
But May Co. wants to maintain an edge. "Acquisitions are in their blood," said Janet Mangano, at Burham Securities, adding that May Co. is very adept at making acquisitions and getting significant returns. So far this year, the St. Louis-based May Co. has acquired 26 department stores, including 10 from Hess's Department Stores, eight from McCurdy & Co., six from Albert Steiger, one from J.C. Penney, and one from Sears, Roebuck & Co. "Both May Co. and Mercantile are very disciplined operators, and both are conservative in their balance sheet," Mangano said. She pointed out that Mercantile has established fine relationships with suppliers and has little debt.
Mercantile's operating margins, however, are about 6 percent of sales, and below the industry average, she noted. May Co.'s operating margins are around 14 percent.
Mercantile operates five divisions with a total of 101 stores under such names as McAlpin's, Castner Knott, Gayfers, J.B. White, Maison Blanche, Jones, Joslins, Hennessy's, de Lendrecie's and Glass Block. With a takeover, the names would likely be wiped out by the acquiring company as part of efforts to achieve greater operating efficiencies.
Past efforts, including moving the central buying office from New York to Fairfield in 1992, and reducing the number of divisions from 11 in 1992 to five currently, have not produced the expected level of cost savings.
According to Isaac Lagnado, principal of Tactical Retail Solutions, the research and consulting firm, Mercantile needs help "on both the top line and bottom line."
Comparable-store figures have been flat to negative single digits for the last three years, compared to industry average of 2 to 3 percent, and May Co.'s 4 to 5 percent.Tactical's research shows that Mercantile's McAlpin's stores used to dominate the Cincinnati-area market, doing $195 a square foot in the late Eighties.
But Federated's Lazarus division has surged into the lead, pushing McAlpin's down to an estimated $165 a foot this year.
McAlpin's is part of Mercantile's Louisville-based division, which also operates Bacons, Root's and Lion stores. Mercantile's gross margins are 29 percent, or two to three points below the industry average.
Mercantile earned $89.7 million, or $2.44 a share, on sales of $2.73 billion last year. May Co. operates 301 department stores, including Lord & Taylor, Foley's, Robinson's-May, Hecht's, Kaufmann's, Filene's, Famous-Barr, and Meier & Frank. It also operates Payless ShoeSource.
@tradesy is turning the concept of a showroom upside down with its new space in Santa Monica. Here, the company plans to hold events, art exhibits and a showcase rare fashion pieces like this Louis Vuitton boxing set. Get all the details on Tradesy’s first showroom on WWD.com. #wwdnews
Spotted last night at the @erdem x @hm launch event: Kate Bosworth, Rashida Jones, Kirsten Dunst and Selma Blair. The party, which took place in LA, also marked the opening of their pop-up shop. “I was interested in creating a collection that wasn’t in any way disposable. It was about pieces you’d create and keep forever, things that have a permanence to it,” designer Erdem Moralioglu said. #wwdeye (📷: Katie Jones)
Renee Zellweger in yellow in 2001 and again in 2017. Chosen as one of the 12 @pantone Leading Spring Colors (and dubbed “Meadowlark”), it only makes sense that the bright hue stands the test of time and is making a resurgence this season, seen already on stars like @blakelively and @gigihadid. (📷: Donato Sardello & @rexfeatures) #wwdfashion #tbt
Dior’s 70th anniversary celebration continues with a new exhibition at the Royal Ontario Museum in Toronto. “Christian Dior,” which is scheduled to run through March 18, takes a look at the founders tenure from 1947 to 1057 and feature 40 designs. Pictured here is an evening gown from the Ailée, fall 1948-49 haute couture collection. #wwdfashion (📷: Brian Boyle)
As one of the most recognizable models in the world, Christy Turlington Burns has an insider’s view of the fashion industry and the allegations of sexual harassment swirling around it. “I can say that harassment and mistreatment have always been widely known and tolerated in the industry. The industry is surrounded by predators who thrive on the constant rejection and loneliness so many of us have experiences at some point in our careers,” Turlington told WWD, along with her suggestions for how the modeling world should protect younger women and men. Read more on WWD.com. Link in bio. (📷: Tony Palmieri) #wwdnews
@asics America has tapped a new brand ambassador: famed DJ/record producer @steveaoki. This initiative is intended to set the tone for the new brand identity and philosophy and will include partnerships with influencers and in-store and off-line activations that will continue into next year. This is Asics’ most significant marketing effort in two decades, and is expected to attract younger consumers to the brand. #wwdfashion
24-year-old Jean Prounis is redefining the rules of jewelry. Formerly a studio assistant to Jemima Kirke and a design apprentice at Ghuran, she focuses on handcrafted subtleties and ancient goldsmithing techniques. “There was a really sterile feel in the environment and I wanted to have jewelry with character that shapes how you wear it everyday,” Prounis said. Each piece is hand made in New York, either by Prounis or three other jewelers in the district. #wwdfashion
“These collections continue to build on that vision, empowering differently abled adults to express themselves through fashion,” said @tommyhilfiger of his line of adaptive apparel, which launches today. The line consists of 37 men’s and 34 women’s styles based upon the pieces from the spring Tommy Hilfiger sportswear collection. #wwdnews