NEW YORK — R.H. Macy & Co. will entertain a merger proposal this morning from persistent suitor Federated Department Stores Inc., putting Federated’s chief executive, Allen I. Questrom, face-to-face with the Macy board for the first time.
The pitch will come around 10 a.m. in the Macy boardroom at the Herald Square store.
Sources said Thursday that Federated is not expected to come in with a sweetened proposal at this time, and the Macy board is likely to reconvene next week to discuss any possible shifts in strategy, based on the meeting.
Questrom is expected to cover several crucial merger issues, among them: the benefits of creating a $12 billion Federated/Macy operation, including cost savings estimated at $100 million or more; which
Federated divisions would be converted to Macy’s; how the merger would be financed; antitrust issues and sell-offs.
Retail experts said Federated’s Abraham & Straus division would be a prime candidate for conversion into Macy stores and that Macy stores in Atlanta would probably be sold. May Department Stores and Dillard Department Stores are considered likely buyers.
Questrom could also discuss which buying system would be used in a combined Macy/Federated operation — Federated’s team approach, or Macy’s buyer-planner system.
Advertising synergies and the possibility of creating a big national TV ad campaign for Macy’s may also be addressed.
One industry expert suggested Federated will argue that Dillard’s or May Co. could pursue Macy’s, once the company emerges from Chapter 11 and the stock begins trading.
Most members of the Macy board, including CBS chairman Laurence Tisch, are expected to attend. The few who don’t will be in touch by telephone.
Questrom will be backed up by James M. Zimmerman, president and chief operating officer; Ronald W. Tysoe, vice chairman and chief financial officer; Thomas G. Cody, executive vice president of human resources, and Karen M. Hoguet, senior vice president of planning and treasurer.
Questrom is said to have already persuaded some Macy board members during private meetings to join Federated’s camp. In the last few weeks, there’s been a growing feeling in the industry Federated will prevail in its quest to merge with Macy’s.
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But sources noted Macy’s future rests with creditors, who will decide whether to accept a Macy’s reorganization plan, which is expected to be filed in the second half of July. Macy’s exclusive right to file a plan expires on Aug. 1.
The plan, which values Macy’s at $3.9 billion, will be mailed to creditors as soon as it filed. Creditors have 60 days from the time they receive the plan to vote on it.
Sources said the meeting with Questrom reflects some change of heart at Macy’s. When Federated announced its merger plan last January, Macy’s swiftly and forcefully rejected it.
For the last several weeks, however, Macy management has been listening to the merger proposal. Macy officials have downplayed the significance of these meetings, describing them as “listening sessions” that meet Macy’s fiduciary responsibilities during bankruptcy. “Questrom will talk and the board will listen, but I don’t see either company moving from their positions,” a source close to the Chapter 11 talks said Thursday.
Meanwhile, the role of mediator Cyrus R. Vance as the man who would fashion an end to the 30-month reorganization seems to have diminished, replaced by direct talks between Macy’s and its creditors.
“I really don’t know what the exact role of Vance will be in the case, and I’m not sure that Judge [Burton R.] Lifland even knows, but having Vance here to settle any disputes is a good thing,” said a source close to the mediation process.
Vance hasn’t met with any party in the Macy’s case in over a month, but keeps abreast of negotiations through his attorneys. In Washington, the Federal Trade Commission, which is conducting an antitrust inquiry into a Federated/Macy deal, is said to be most concerned about the impact a merger would have on mall developers.
John J. Gilluly Jr., chief financial officer of Sizeler Property Investors of Kenner, La., which developed and operates two malls and 11 shopping centers, said the effect of a merger would be minor if the stores kept their names and identities.
“I don’t see a substantial effect if the same stores and the same number of stores exist after the merger,” Gilluly said. “Mall developers and mall managers usually give the same economic terms to both anchors in a mall so they won’t be hurt if they have to negotiate with one department store owner instead of two.”
On the other hand, Gilluly noted, if Federated is successful in merging with Macy’s and decides to close many stores and consolidate divisions, the effect on developers would be greater.
“Mall developers look first and foremost to department stores when developing properties,” he said. “Market research, often done in tandem with department stores and the most important part of developing, would be hurt and the number of malls developed would diminish.”
G. Oliver Koppell, the New York State Attorney General, said Thursday his office continues to review documents supplied by Federated and Macy’s. Koppell has started his own investigation into possible antitrust violations of a merger, independent of the Federal inquiry.