By and  on March 28, 1994

NEW YORK - The stock of Mercantile Stores Co. closed at a 12-month high Friday amid rumors on Wall Street that May Department Stores Co. is eyeing the company as a possible takeover candidate.

Mercantile closed Friday at 40 7/8 up 7/8. Composite volume was 258,000 shares in heavy trading. On Thursday, 162,000 shares were traded, well over the company's average volume.

May Co. was down 1 1/2, to 42 1/2. Both companies are traded on the New York Stock Exchange.

Mark Dudeck, manager of investor relations for Mercantile, said Friday that he knows no reason for the stock activity. Asked about the takeover rumor, he said, "I have no comment." May Co. also declined comment.

Roger Milliken, chief executive officer of Milliken & Co., a major textile company, and officers of Mercantile control 44 percent of Mercantile stock, so any takeover would have to be friendly.

Over the last several weeks, reports have spread that May Co. is seeking a major retail acquisition to maintain its position as the largest department store chain in the country. May Co.'s annual volume is $10.5 billion. Sources believe May is motivated by Federated Department Stores' attempt to take over R.H. Macy & Co.

Retail sources said conversations between May Co. and Mercantile representatives were held about a month ago, but one source said they went nowhere.

In the Seventies and Eighties, Mercantile consistently produced operating profits at 10 percent. More recently, profits have been running in the mid-single digits.

Some Macy's units, including those in Atlanta and northern California, where May Co. does not operate stores, are also said to be under consideration by May Co. Macy's has stated it has no plans to break up the business, but a successful Federated bid for Macy's could trigger selloffs.

Analysts said May Co. would consider other retailers, if they were put on the market. Among them are Wanamaker's, with locations in Pennsylvania; units of Los Angeles-based Carter Hawley Hale, and Strawbridge & Clothier, based in Philadelphia.

Federated has yearly sales of $7 billion, and if it acquired Macy's, its volume would be $12 billion to $13 billion. May Co. would reach that size if it acquired Mercantile.Mercantile operates 101 moderate-to-better-priced department stores under such names as Maison Blanche, Gayfers, Castner Knott and Joslins.

The stores are in primarily secondary markets in 17 states. Net income was $86 million last year on sales of $2.7 billion.

The company is based in Fairfield, Ohio, a suburb of Cincinnati.

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