Byline: Jeff Siegel, with contributions by Carol Emert, Washington, and Rich Wilner, New York

NEW YORK--A group led by Federated Department Stores Inc. reached an agreement Wednesday to buy Woodward & Lothrop Inc., spelling the end to the 114-year-old Washington-based institution that had tried to emerge from bankruptcy as an ongoing operation.
The price paid for the 26 stores involved in the deal was not disclosed.
Federated will purchase at least 11 Woodward & Lothrop stores in the Washington/Baltimore area, which will be converted to Macy's. In addition, Federated will also acquire the John Wanamaker flagship store in downtown Philadelphia, if certain conditions, which weren't specified, are satisfied. W&L owns Wanamaker's.
The group also consists of Strawbridge & Clothier, which will get six Wanamaker units; Boscov's Department Store Inc. will purchase two Wanamaker's, and the Rubin Organization, a Philadelphia-based real estate developer, said it would buy "several Wanamaker's."
W&L operates 15 W&L and 14 Wanamaker's stores, as well as four home furnishings units and three clearance centers. The corporation is trying to sell three units that are not included in the Federated deal.
Unsecured creditors, who would receive 35 to 40 cents on the dollar under the terms of the deal, expressed support for the purchase. However, secured note holders reportedly are dead set against the deal.
Owners of more than $130 million in notes secured with store mortgages, are prepared to "fight tooth and nail" against the plan, sources told WWD.
"They are totally against this deal," a source said. "They don't believe the company picked the highest and best offer."
The source refused to cite the other offers W&L received but said one bid put forward by May Department Stores and J.C. Penney was better. May Department Stores reportedly wanted to buy Wanamaker's to build a presence in the Philadelphia area, but the Federated deal effectively locks May and Penney's out.
A financial source said the problem with the Federated deal was that secured creditors with liens against W&L's real estate would very likely receive a lesser payout than they might get under a deal in which W&L was purchased whole.
Wilbur Ross, senior managing director of Rothschild Inc., financial advisers to the unsecured creditors' committee--which holds about $220 million in claims--said he was not worried about the opposition because its position wasn't likely to upend the deal.
"I don't believe they have any legitimate complaint about the deal, itself," Ross explained. "They're upset about how they're being treated." He added, "The same issues would be there" if someone else would have come up with the winning offer.
The sale of the stores to the Federated group, plus the sale of other assets to other parties, is expected to generate gross proceeds of about $640 million, W&L said in a release.
Strawbridge & Clothier, which operates 13 department stores in the Philadelphia tri-state market, has agreed to acquire six Wanamaker stores.
Federated and Strawbridge & Clothier said in statements that they would hire "substantially" all of the store employees in the units being acquired.
Boscov's Department Stores, based in Reading, Pa., has agreed to buy two Wanamaker's stores. Edwin A. Lakin, president, refused to identify the stores being added to the Boscov family but said, "The stores are within our region." While the Federated purchase quickly boosts Macy's presence in the Washington/Baltimore market, it will make Federated's balance sheet even more debt-heavy. Federated executives previously said the debt is manageable.
Federated had long-term debt of $4.5 billion as of Jan. 28, while shareholders' equity totaled $3.6 billion.
"This acquisition is a natural extension of our presence in this very desirable market, as well as a way for us, in one stroke, to strategically achieve meaningful coverage for our stores in the Washington and Baltimore areas," Allen Questrom, Federated's chairman and chief executive, said in a statement.
Macy's East, Federated's largest department store division, currently operates 92 stores under the Macy's and Jordan Marsh nameplates. Macy's has three stores just outside the Beltway surrounding Baltimore and three in Virginia suburbs of Washington.
Of all the locations Federated is picking up, there is only one where Macy's and W&L compete head-to-head: the White Marsh Mall in Perry Hall, Md.
Robert Mang, W&L chairman and ceo, said, "Our position is that we have significantly improved the opportunity for creditors to recover, versus what we had hoped would be a stand-alone plan for the company."
Although the bidding companies announced that they would put their own names on their stores, Mang said the group has agreed to buy the Woodward & Lothrop and Wanamaker names.
The Federated group has already negotiated and signed a modified labor agreement with the local chapter of the United Food and Commercial Workers Union, said W&L president Edwin Holman.
Holman and Mang said it has not been decided whether any members of the company's current top management will remain on board.
An asset-purchase agreement between W&L and the Federated group will be completed late this week or early next week, and presented to bankruptcy court next week, Mang said. Court approval is expected to take about three weeks and final closure, in six to eight weeks.
The plan will form the basis for the store's reorganization plan, which probably will be presented to the court sometime in September, Holman said.
Holman said W&L has not been officially informed of any creditor opposition to the deal.
There was speculation Wednesday that former W&L stores becoming Macy's could sap business from existing Macy stores in the Washington area. WL's downtown flagship store is "right across the river from Pentagon City," which contains a Macy's, noted John Asadoorian, director of retail services at Grubb & Ellis, a real estate firm.
"I can't see two Macy's that close to each other," Asadoorian said.

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