NEW YORK — If size really does matter, then Federated will have to make an acquisition in order to maintain its position relative to a now Marshall Field’s-enhanced May Co.

All eyes are fixed on Dillard’s as the prime target, since the nation’s third-largest department store company would expand Federated into the coveted Midwest, where it has little or no presence. Dillard’s is also attractive, in part, because its dismal operating performance during the last five years means it could probably be had for well below its $7.86 billion in annual sales. Calculating the midpoint between Dillard’s value as a revenue generator and as a real estate play, A.G. Edwards & Sons analyst Robert Buchanan estimated a price tag of $5.35 billion for the company.

The great unknown, which is a coin toss at best, is whether or not the Dillard family will sell. Indeed, Buchanan put the likelihood of a sale over the next 12 to 18 months at only 50 percent.

So, if Federated can’t have Dillard’s, what else is out there? To be sure, Federated has the resources to take a shot at almost any retailer it wants. It has more than ample cash and cash flow to borrow and buy. Moreover, with almost $9 billion in market capitalization, Federated has plenty of share value to trade. It’s also financially robust, boasting a strong balance sheet with leverage well under control. The long-term debt-to-equity ratio stands at 0.52, well below what Wall Street prefers, and its quick ratio for the most recent quarter was 1.08.

Below are some companies Federated could consider for an acquisition as well as a rough idea of what they might cost. Given the factors that would enter into such a negotiation — the assumption of debt, real estate value and share price, to name just a few — the ballpark price tag is necessarily simplified, but rooted in reality. Historically, department stores have commanded a price of one times annual sales. The ballpark figure has therefore been set at that number, plus or minus 10 percent. Of course, the iron law of economics still stands: Something is worth only what you can get someone else to pay for it.Belk
Annual Revenue: $2.26 billion
Number of Stores: 225
Ballpark Price Tag: $2 billion to $2.5 billion
Would give Federated new or expanded markets in Arkansas, Mississippi, North Carolina and Texas, with considerable overlap in Florida. Geographically, not a great fit.

Bon-Ton
Annual Revenue: $926.4 million
Number of Stores: 142
Ballpark Price Tag: $834 million to $1.02 billion
Bon-Ton’s namesake stores overlap with Federated in the Northeast, but its Elder-Beerman operations would open or expand markets in the Midwest. An interesting scenario.

Boscov’s
Annual Revenue: $1.05 billion
Number of Stores: 41
Ballpark Price Tag: $900 million to $1.2 billion
Concentrated presence in Pennsylvania, New York and New Jersey, where Federated is already heavily represented. Doesn’t make sense geographically.

Gottschalks
Annual Revenue: $667.8 million
Number of Stores: 73
Ballpark Price Tag: $600 million to $735 million
With 64 department stores and 11 specialty stores in California, Washington, Alaska, Idaho, Oregon and Nevada, doesn’t give Federated a beachhead in the Midwest. Again, lots of overlap.

Neiman Marcus
Annual Revenue: $3.1 billion
Number of Stores: 51
Ballpark Price Tag: $2.79 billion to $3.41 billion
As long as Federated doesn’t seriously overpay for the superpremium operator of the Neiman Marcus and Bergdorf Goodman nameplates, this is the kind of deal that gets Wall Street excited. First-rate real estate in major markets, outstanding earnings and sales in the booming luxury sector and overall operational excellence make this elite company a tantalizing target.

Nordstrom
Annual Revenues: $6.49 billion
Number of Stores: 149
Ballpark Price Tag: $5.84 billion to $7.14 billion
Like Neiman, this deal would be a major coup. Earnings and sales are riding high on the luxury wave, and operations, which were already extremely good, are getting even better. Nordstrom also has numerous stores in major Midwestern markets. If the price is right, a real prize.Stein Mart
Annual Revenue: $1.36 billion
Number of Stores: 142
Ballpark Price Tag: $1.2 billion to $1.5 billion
On the plus side, would open or expand Federated in key markets, especially in the Midwest, making it the best geographic fit. On the negative side, not a department store, but rather an off-pricer.

Source: WWD calculations based on company reports

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