By  on February 2, 2005

NEW YORK — The price for May Department Stores Co. is rising and Federated Department Stores is not expected to make a deal anytime soon to buy the business, though negotiations are continuing, according to sources.

“It’s about $10 [per share] more than Federated wants to pay,” said one source, referring to May’s stock price.

Shares of May Department Stores closed at $33.66, down 24 cents, in trading Tuesday on the New York Stock Exchange. The shares, around the $31 range when the news broke two weeks ago that May and Federated were in talks, rose quickly to the $36 range, but have since given back some of their gains amid speculation that talks are not progressing to a deal.

Shares of Federated picked up slightly on the news that merger talks might be stalling, rising 86 cents on Tuesday to close at $57.66 in trading on the Big Board. They had been trading in the $55 range when the news about the merger came to light, but — typical of firms in the position of acquirer — subsequently fell to the $54 range. The stock settled back to the $55-$56 territory at the end of January before regaining the lost ground on Tuesday.

It’s believed that Federated’s strategy may involve waiting for May Co. to issue earnings reports, which are expected to be weak and could negatively affect the retailer’s stock price.

As retail analyst Walter Loeb said: “I believe that the consolidation of the two companies would be beneficial to retailing. However, I also believe that it will take some time for the parties to agree on all terms. A deal won’t happen overnight.”

Meanwhile, May Co.’s search for a new chief executive officer to replace Gene Kahn, who resigned under pressure last month, isn’t proceeding at a rapid pace because the merger talks are taking precedence. The search also is complicated, as executive recruiter Elaine Hughes noted, by noncompete restrictions tying up many potential candidates. “Most presidents and other top executives in retail today have noncompetes in their contract,” she said.

Vanessa Castagna, former chairman and ceo of Penney’s stores, catalogue and Internet, is an exception, establishing her as a candidate. Hughes also said that individuals in the food business could be candidates since they understand retail and channels of distribution. The most recent convert to general retailing from food was Alwyn Lewis, Kmart’s president and ceo, who hailed from Yum Brands Inc.

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