ANALYST: WAR FOR W&L MAY COST WINNER DEARLY

Byline: Valerie Seckler

NEW YORK--A bidding war over Woodward & Lothrop's 29 department stores could result in a Pyrrhic victory, according to retailing analysts following bids by Federated Department Stores and May Department Stores for the chain.
Robert Buchanan, analyst at NatWest Securities, said Monday that May Co. and Federated "are bidding up this property so much, I'm starting to worry that no one's going to make serious money."
Retailing analysts continued to maintain Monday that Federated is likely to improve its offer, reasoning that another $60 million or so isn't much more to pay for a big chunk of the Washington market.
As reported, the joint bid made Thursday by May Co. and J.C. Penney is expected to generate gross proceeds of $704 million. This compares with the $640 million in gross proceeds seen under Federated's June 21 offer. The May/Penney bid also offers $58 million more in distributable value to creditors of the bankrupt W&L and represents about 82 percent of W&L's annual sales of $850 million. The Federated offer comes to about 75 percent of annual revenue.
"Eighty percent of revenue is pretty dear for a bankrupt property," Buchanan noted. "Fifty percent of revenue is advantageous in a bankrupt situation."
Of further concern, said the analyst, is "the amount of money that needs to be spent in some of Woodie's stores to renovate them." Nevertheless, Buchanan said, "I wouldn't be surprised too see more bidding activity from both sides."
The value of W&L stores to the bidders "all depends on how much each is projecting they can improve sales," observed retailing consultant Arnold Aronson.
Aronson, a former chairman and chief executive of W&L, said Monday that Federated and May Co. "believe they could do better than W&L because with their critical mass they can get economies of scale and run better product development programs."
"I think only the top principals of both companies can develop the right mix of quantitative and strategic variables," Aronson added.
Some analysts think Federated's June 21 offer was too high, based on the real estate value.
However, Ladenburg, Thalmann analyst Barry Bryant observed it is becoming harder and harder to overpay for department stores "when the key for majors is to be in every market."
"It's not inconceivable that the two sides could get together and work something out," Buchanan offered. "May mostly wants Philadelphia. Federated mostly wants to get more into D.C. Why can't they both have their cake?" He added that it may make more sense to work together if the bidding gets too high.

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