By and  on September 12, 1994

NEW YORK -- The acquisition frenzy continues.

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.

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