THE NEXT BLOCKBUSTER? MAY CO. SAID TO BE EYEING DH DEPT. STORES

NEW YORK--One of the biggest deals in modern retailing could be brewing between May Department Stores Co. and Dayton Hudson Corp.
Acquisition-hungry May Co. reportedly is talking with Dayton Hudson about acquiring its department store division. If such a deal is consummated, it would be the second such blockbuster within a year.
It would make May Co. the second-biggest department store chain in the U.S., a position it now
holds but would lose when the merger between Federated Department Stores and R.H. Macy is completed.
A May Co.-DH alliance would create a $14 billion business. When the Federated-Macy deal is completed next month, as expected, it will bring Federated's volume to $13.5 billion. J.C. Penney Co.'s 1993 volume was just about $19 billion.
In addition to its volume, the DH department store division includes three of the nation's best-known and most venerable names: Marshall Field's, Dayton's and Hudson's, each one a force in its prime market--Chicago, Minneapolis and Detroit, respectively.
May Co. stretches coast to coast, from Lord & Taylor in New York and Hechts in Washington, D.C., to Robinson-May, Los Angeles, and Meier & Frank, Portland, Ore. In between are such notable names as Famous-Barr, St. Louis; Kaufmann's, Pittsburgh, and Foley's, Houston.
In recent months, speculation has swirled around May Co. as a likely suitor for Mercantile Stores and as a possible buyer for units that Federated Department Stores might put on the block following its merger with R.H. Macy & Co.
Reports of May Co.'s interest in DH's department stores might have been fueled by an announcement Tuesday that DH expects to focus its 1995 expansion on its Target discount-store division.
Another factor that could be encouraging May Co. to look for acquisitions, according to analysts, are the recent Federal Trade Commission and Hart-Scott-Rodino decisions to permit Federated and Macy to merge.
Meanwhile, reports resurfaced about the possibility of Philip Miller, chairman and chief executive of Saks Fifth Avenue, organizing a leveraged buyout of DH's Marshall Field's division. Those rumors have been heard before, but the speculation about May Co. seemed to give them a new weight.
If Miller makes such a bid, said a retail analyst for a Wall Street brokerage firm, "it would make sense for Dayton Hudson Corp. to sell the department store division." According to the same source, May Co. has an acquisitions book "that's three inches thick."
A spokesman for Investcorp, parent of Saks Fifth Avenue, Wednesday again denied the speculation about Miller.
As for the May Co.-DH rumors, Janet Mangano, an analyst at Burnham Securities, said Wednesday, "Talk is in the air, but of course we can't confirm it."
One source in St. Louis, who did not want to be identified, said May Co. is "seriously negotiating a merger with Dayton Hudson" for DH's department stores. The source declined to provide further details.
A spokesman for May Co., which is based in St. Louis, said the company's policy is not to comment on any rumors or speculation.
Robert Ulrich, chairman and ceo of Dayton Hudson, could not be reached for comment Wednesday. A DH spokeswoman, however, said there is "no deal" with May Co.
"We don't plan to do anything except to do what we've been doing," the DH spokeswoman said. "That is to keep the department stores."
DH's department store division consists of 63 full-line stores operating under the Dayton's, Hudson's and Marshall Field's names. Its Mervyn's moderate-price division has 286 stores, and Target operates 611 discount stores.
Many retail-industry watchers say Dayton Hudson might eventually sell its department store businesses and use the resulting funds to fuel the expansion of the Target chain. But, they add, the Minneapolis-based retailer's move to unload Marshall Field's, Dayton's and Hudson's might not come for some time, even though potential purchasers are waiting in line.
"I know May is interested, and others are interested," one New York investment banker said. "But so far, Dayton Hudson has no interest in selling its department store business."
Fulton Macdonald, president of International Business Development, said he believes May Co. is "in active discussions with Dayton Hudson."
"I know Dave Farrell [May Co. chairman] firsthand," he said. "Acquiring Dayton Hudson fits into his strategic agenda. Now that Federated has stepped above them, he wants to be back on top."
The rumors of discussions between May Co. and DH may have been fueled, in part, by DH's third-quarter results. Its department store division performed "slightly below expectations," the company said Tuesday, and operating income and gross margins were flat in the quarter, which ended Oct. 29.
In its expansion plans for 1995, which also were announced Tuesday, DH said it expected to spend $1.3 billion on capital expenditures, with much of the funding earmarked for the opening of 60 to 70 Target discount stores. One new department store, a Marshall Field's unit outside of Chicago, and four Mervyn's units, are also in the expansion plans.
Another factor that might be encouraging May Co. to look for acquisitions, according to analysts, are the recent Federal Trade Commission and Hart-Scott-Rodino decisions that permitted the Federated-Macy merger.
"Even though there was overlap in certain markets, the merger was allowed to go through," Mangano said. "I think the feeling among retailers that want to expand their business is that if there is some overlap, it could be worked out."
The one area where May Co. and DH have a significant overlap is Texas, where DH operates a Marshall Field's and May Co. owns Foley's.
Mangano raised yet another possibility, one some people think is unlikely. She said even though Mercantile Stores has stated that its talks with an unnamed suitor--widely believed to have been May Co.--have been called off, that might not be the case.

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