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Department store buyout on brink?

Federated's $10-billion merger with rival May Department Stores is being judged by both sides, a report says.

ST. LOUIS - Federated Department Stores Inc.'s possible $10-billion buyout of rival May Department Stores Co. has reached a critical point, with boards of both retailers to meet separately into the weekend to perhaps finalize the deal, the Wall Street Journal reported Friday.

Citing unidentified sources, the Journal reported that Federated - owner of the Macy's and Bloomingdale's chains - held a regularly scheduled board meeting Friday in New York. Afterward, the company issued only a brief statement about a quarterly dividend, mentioning nothing about merger talks.

The board of May - operator of Lord & Taylor, Famous-Barr, The Jones Store, Filene's and other regional department stores - then would review the offer over this weekend, the Journal reported.

The newspaper said the two sides have been split on financial terms of the deal. Three sources cited in the report pegged the potential offer by Federated to likely be below $40 per share, with May negotiating over its presence in St. Louis, its headquarters since 1905.

May spokeswoman Sharon Bateman declined to comment Friday.

Messages left with Federated were not returned.

The Journal said that though price has been a sticking point in the talks, with May wanting more than Federated was willing to pay, few other problems were said to be apparent between retailers with little geographical overlap. Brokerage firm Smith Barney estimates that just 94 malls have both Federated and May stores.

May reportedly has suspended its search for a new chief executive as it continued merger talks with Federated.

May's shares rose $1.50, or 4.4 percent, to close at $35.35 in Friday trading on the New York Stock Exchange, having ranged from $23.04 to $36.48 over the past year. Federated shares fell 22 cents to close at $56.79 on the NYSE, near the upper end of its 52-week range of $42.80 to $59.91.

At May, John Dunham has served as interim chief executive since Gene Kahn abruptly stepped down last month as chairman and CEO, just seven months after helping May acquire Target Corp.'s Marshall Field's department stores and nine Mervyn sites for $3.24-billion. Many analysts said the price was too steep by several hundreds of millions of dollars. May beat out Federated in that bidding.

Analysts said Kahn had been criticized by people within May for micromanaging the business and not developing a clear vision for the company.

Some analysts have suggested that uniting two of the nation's largest department store chains into a behemoth with nearly 1,000 stores would make sense, creating a more efficient operation better equipped to go up against discounters. Together, the companies could wring savings out of their merged retail systems and buying clout, some analysts suggested.

Others questioned whether the two retailers would be a good fit, citing the belief that Federated may be more upscale and May always margin-oriented while lacking on the merchandising side.

May's performance has lagged behind competitors like Federated and J.C. Penney Co. as it has failed to come up with a compelling merchandising vision under Kahn and consequently has resorted to aggressive price cutting to bring customers into the stores.

[Last modified February 26, 2005, 01:14:15]