NEW YORK — The price for May Department Stores Co. is rising and Federated Department Stores is not expected to make a deal anytime soon to buy the business, though negotiations are continuing, according to sources.

“It’s about $10 [per share] more than Federated wants to pay,” said one source, referring to May’s stock price.

Shares of May Department Stores closed at $33.66, down 24 cents, in trading Tuesday on the New York Stock Exchange. The shares, around the $31 range when the news broke two weeks ago that May and Federated were in talks, rose quickly to the $36 range, but have since given back some of their gains amid speculation that talks are not progressing to a deal.

Shares of Federated picked up slightly on the news that merger talks might be stalling, rising 86 cents on Tuesday to close at $57.66 in trading on the Big Board. They had been trading in the $55 range when the news about the merger came to light, but — typical of firms in the position of acquirer — subsequently fell to the $54 range. The stock settled back to the $55-$56 territory at the end of January before regaining the lost ground on Tuesday.

It’s believed that Federated’s strategy may involve waiting for May Co. to issue earnings reports, which are expected to be weak and could negatively affect the retailer’s stock price.

As retail analyst Walter Loeb said: “I believe that the consolidation of the two companies would be beneficial to retailing. However, I also believe that it will take some time for the parties to agree on all terms. A deal won’t happen overnight.”

Meanwhile, May Co.’s search for a new chief executive officer to replace Gene Kahn, who resigned under pressure last month, isn’t proceeding at a rapid pace because the merger talks are taking precedence. The search also is complicated, as executive recruiter Elaine Hughes noted, by noncompete restrictions tying up many potential candidates. “Most presidents and other top executives in retail today have noncompetes in their contract,” she said.

Vanessa Castagna, former chairman and ceo of Penney’s stores, catalogue and Internet, is an exception, establishing her as a candidate. Hughes also said that individuals in the food business could be candidates since they understand retail and channels of distribution. The most recent convert to general retailing from food was Alwyn Lewis, Kmart’s president and ceo, who hailed from Yum Brands Inc.

This story first appeared in the February 2, 2005 issue of WWD. Subscribe Today.

“Someone from a different sector could make sense depending on how the business model is viewed, such as it being more about distribution and logistics to the stores than fashion assortment,” Hughes said. 

May will also consider inside candidates, including Frank J. Guzzetta, president and ceo of Marshall Field’s since November. He held those titles at the Hecht’s/Strawbridge’s division, headquartered in Washington, D.C. He’s regarded as a strong merchant with leadership skills.

Another is William P. McNamara, May’s vice chairman and the link between corporate and stores, with experience in merchandising and operations and running divisions. 

John L. Dunham is serving as acting chairman and ceo of May while continuing in his duties as president.

Even if the talks end without a deal, Federated could come back to pick up certain pieces of the May business, or pursue properties held by other retailers, such as Saks Inc. or Neiman Marcus. Federated would be most interested in May’s Marshall Field’s division in the Chicago area and Foley’s in the Texas market. In both regions, Federated has very little coverage, aside from a few Bloomingdale’s and Macy’s stores.

Another source cited the possibility that other bidders emerge, including J.C. Penney. A Penney’s spokesman said the company would not comment on the rumor.

The source also expressed the possibility that private equity or real estate firms that have been active in the acquisitions arena could make a play for May, such as Sun Capital Partners Inc. and Cerberus Capital Management LP. Sun and Cerberus last year were part of an investment group that bought Mervyn’s retail operations for $1.2 billion in cash. Another possibility cited was Vornado Realty Trust, which is said to be interested in Sears, Roebuck & Co. Vornado owns about 5 percent of Sears.

In the Nineties, Penney’s expressed interest in buying the department store division of Target Corp., which at that time operated stores under the Dayton’s, Hudson’s and Marshall Field’s nameplates and subsequently converted all the units to the Marshall Field’s name. Target subsequently sold Field’s to May Co. for $3.4 billion last year.

— With contributions from Vicki M. Young