By and  on June 5, 2006

NEW YORK — The sale of Lord & Taylor reaches a critical phase this week.

According to sources, senior management from Lord & Taylor will make formal presentations over the next few days to up to four bidders, among a field of approximately 10.

As reported, initial bids were due May 19 and Lord & Taylor’s parent Federated Department Stores Inc. was quick to narrow the field. The retailer is believed to be keen on at least three bids, according to sources familiar with the process. Investment banking contacts didn’t know the amount of the bids, but one banker said he believed Federated was getting offers in line with its asking price of $1.2 billion. After this week, another round of bidding is expected.

The sources also said that Federated, which inherited Lord & Taylor through its acquisition of May Department Stores last year, is likely to sell it to a consortium that includes a real estate company, a private equity firm and possibly a retailer operator. That would keep the chain going, at least for a few years, and out of the hands of a more direct competitor, such as Nordstrom.

“The key issue is that Federated wants someone to operate Lord & Taylor,” said a financial source.

One joint bid was submitted by Schottenstein Stores Corp. and Kimco Realty Trust. A real estate source said this team “could be the one to beat.’’ In this scenario, Schottenstein would operate the unit and, together with Kimco, could maximize the real estate assets.

A difference between this and the other bidders is that Schottenstein itself is an operator and as such could add greater value on how to mold and position the Lord & Taylor business. There is also a stronger possibility that the business would stay within the Schottenstein umbrella.

The other bidders are private equity players. While they have bought retail operations in the past, their typical mandate is to keep the existing retail management team in place, make necessary changes and eventually sell the operation as part of their exit strategy.

Federated is said to be concerned about the possibility that Lord & Taylor might eventually be sold to a competitor, such as Nordstrom, a scenario that could happen down the road in the event the unit is sold as part of a financial player’s exit strategy. Federated would not consider Schottenstein as much of a direct competitor as Nordstrom.

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