By  on February 16, 2005

NEW YORK — Think stalled, not broken down.

The merger dance between Federated Department Stores and rival May Department Stores still has legs, according to sources. At least two leading retail analysts have pegged May with an acquisition value of $36 to $40 a share.

Despite published reports, the analysts and sources said there has been only a pause in the talks between Federated and May, not an irrevocable breakdown. The analysts believe the likelihood of a Federated takeover of May remains high in the end given the rush to acquire that seems to have taken hold in the retail world.

And Terry Lundgren, chairman, chief executive officer and president of Federated, has plenty of options to consider if he’s hunting for a company to buy. Federated reports sales and earnings Tuesday, and the company may reveal a balance sheet healthy enough to lure a mega-investment bank (or banks) into underwriting a Federated takeover of May — or another retailer, for that matter, from Neiman Marcus Group to Saks Inc.

The mergers and acquisitions market is red hot right now. Financial sources say Lundgren might take a lunge at Neiman Marcus Group, where he once worked. Neiman’s may be in play for a secondary stock offering or a sale of one of its subsidiaries. Sources in the financial community also say Neiman’s could make a bid for Saks Fifth Avenue.

As an acquisitions target, Neiman’s is attractive, although there are some strings attached. The luxury retailer is one of America’s best-performing properties. But the retailer is already operating in most major markets with affluent demographics to support the store. The retailer could develop new formats and more specialized or smaller versions of its core stores, however.

Earnings keep going up for Neiman’s and the stock price is high, hovering recently in the $70 range. This would mean that Neiman’s would command a premium price.

But the time could be ripe for a Neiman’s takeover, since its major shareholders, the Smith family, are said to be eyeing a sale of some or all of their stake, either to a single buyer or through a secondary offering. There has been a lot of buzz recently about the Dallas-based retailer and its ceo, Burt Tansky, who reportedly has been spending a lot of time in Boston, which is where the Smith family resides.

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