FEDERATED HOLDERS OK MACY MERGER
Byline: David Moin
CINCINNATI — Shareholders of Federated Department Stores overwhelmingly approved the merger with R.H. Macy & Co. Tuesday; 98 percent of the votes were in favor of the transaction.
This leaves Federated with one last, major hurdle in its quest to combine with Macy’s. The deal must be approved by Macy’s creditors and bankruptcy court at a Dec. 8 hearing in New York. Creditors already have begun to vote on the deal.
The Federated shareholder votes were tallied at a special two-hour meeting at Federated headquarters here, which was attended by about 120 shareholders and Federated employees.
Allen I. Questrom, chairman and chief executive officer of Federated, said shareholders and customers should benefit from the deal. He projected that Federated’s per-share earnings would rise by 30 percent at a compounded rate over the next four years.
In addition, Questrom said the merger would enhance merchandise assortments and allow Federated to benefit from Macy’s expertise in product development. For example, he said, with Macy’s know-how, Federated would be able to save millions of dollars and shave at least four years from the timetable required to build its private label program from a current 5 percent to the goal of 16 percent of total sales.
Questrom predicted Federated would come close this year to its goal of increasing EBITDA margin (earnings before interest, taxes, depreciation and amortization) to between 11 and 13 percent of sales. This would be a full year ahead of schedule.
Even as results improve, though, Questrom said Federated would face intensified competition from all other retail formats. He said he believed it was inevitable that only a handful of department stores would remain viable competitors.
Questrom said Federated plans to spend about $700 million per year over the next four years on capital improvements, almost 70 percent of it earmarked for store remodeling. Following the merger, Federated, as reported, projects sales will grow from $14.5 billion in 1995 to more than $17 billion in 1998, based on an average annual increase in comparable-store sales of 3.6 percent.
In other news, Federated reported Tuesday that total sales for the four weeks ended Nov. 26 rose 9.7 percent and comparable-store sales increased 6.2 percent. Revenues in the period totaled $768.7 million compared with $701 million last November.
For the year to date, Federated’s sales have risen 6.5 percent to $5.9 billion. On a comparable-store basis, the increase was 3.1 percent.
At a news conference following the shareholders’ meeting, Questrom said he had been disappointed with Federated’s results during September and October, but was “pleased” with November sales. “The company is off to a good start for the holiday shopping season and well within its plan of running 4 to 5 percent ahead for the season,” he said.
In November, Federated’s business was paced by home furnishings as well as better and moderate-priced apparel, special sizes, fragrances, intimate apparel, men’s sportswear and dress furnishings, Questrom said.
On a personal note, Questrom said he had not made any decision about retiring, but added, “After eight or nine years, the chairman should be changed. You wear out your welcome.”
Questrom, whose contract expires in February 1998, became chairman in 1990.
There has been speculation that Questrom may enter politics, but on Tuesday he said, “Running for office is a long way off.”
Responding to union officials who expressed concern about job cuts and severance packages for Macy’s executives, Questrom acknowledged jobs would be lost in the short term, but predicted Federated’s head count would increase over the long haul.
Union officials were bitter about golden parachutes awarded to former Macy’s executives, including outgoing ceo Myron Ullman, who will receive a $12 million severance package. Questrom said that deal was an agreement among Ullman, Macy’s board and creditors and had nothing to do with Federated. He said the same was true of the $14 million Roger Farah package. Farah is the former Macy’s president.
Outside Federated headquarters, about 100 union workers carried placards that read, “No more golden parachutes,” “Union members are shareholders, too” and “Stop union-busters in Cincinnati.”
In addition to downsizing and corporate compensation, union members outside the meeting were concerned about whether Federated would hire union workers to build its new Lazarus flagship near Fountain Square West in the heart of Cincinnati. Construction of the 180,000-square-foot store is scheduled to begin next spring, and the opening is planned for fall 1996.
The existing Lazarus flagship is an 817,000-square-foot facility that includes the Lazarus headquarters and other nonselling areas.