NEW YORK -- Federated Department Stores Inc. made a surprise move Sunday toward acquiring its archrival, R.H Macy & Co., Inc.
Federated has bought half of the secured claim of Macy's single largest creditor -- Prudential Insurance Co. of America -- making Federated a major player in Macy's Chapter 11 reorganization.
The total purchase is valued at $449.3 million, with Federated paying $109.3 million in cash and the remainder due in three years. Federated has the option of acquiring the remaining 50 percent within three years.
Although at this point Federated is buying debt, upon a reorganization plan and Macy's emergence from Chapter 11, it will likely turn into equity.
"Prudential owned approximately 15 percent of the total debt and 36 percent of the secured debt," said a Federated spokesman. However, it is unclear how these percentages will translate in a reorganization plan.
This sneak attack gives Federated a foothold to acquire a major chunk of Macy's down the road, and industry observers say it could block out other potential Macy takeover candidates such as Dillard's and May Co.
Federated stated Sunday that it acquired half of the Prudential claim "with the ultimate objective of working toward a combination of Federated and Macy's into a single nationwide multi-billion dollar department store operation, with the potential for greatly enhanced operating efficiencies."
Allen Questrom, chairman and chief executive officer of Federated, said in a statement: "We are enthusiastic about the prospect of creating an exciting new department store company that can offer enhanced value and long-term growth potential to Federated's shareholders, as well as to Macy's creditors, to our customers and all of our combined stakeholders."
"What we are trying to do is get a place at the table as a secured Macy's creditor," added a Federated spokeswoman. "We will have some say in the reorganization through the bankruptcy process, with which we are thoroughly familiar." Federated emerged from a two-year Chapter 11 reorganization in February 1992.
Myron E. Ullman, chairman and chief executive officer of R.H. Macy & Co., said he first heard about Federated's move Sunday afternoon.
"From our point of view, Macy's has made good progress within our reorganization. It doesn't surprise us to learn of the interest in the company. Macy's is a great franchise."
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