Macy’s-May?

Federated Department Stores Inc. (Cincinnati) is reportedly revisiting thoughts of acquiring The May Department Store Co. (St. Louis), its largest competitor.

The chain retailers briefly conducted merger talks two years ago.

Although the two companies have not had any meetings yet, The New York Times reports that Federated has let May know that it might be interested in picking up where they left off.

Last week, May’s board ousted Gene Kahn, its chairman and chief executive, after almost three years of disappointing sales throughout the chain. One of the sticking points in the 2002 negotiations was who would emerge as chief executive. With Kahn gone, and Terry Lundgren more firmly established at the top Federated position, that becomes almost a moot point.

Yesterday, executives close to May said the board might now be more disposed to listen to a merger proposal from Federated, if one were made. But the executives added that May would get a lot more money in a deal if it had a new chief in place and a turnaround in progress.

“Talk to us in a year,” an executive connected with the company told The Times. But analysts say that Federated is ready to move now, and might even settle for a slice of the pie. Federated has long coveted the Marshall Field’s chain, which May bought in 2004 for $3.2 billion, and might be interested in just that. Federated lost Field’s in a bidding war when it came about $500 million short of May’s bid. Now, with declining store sales and $6.9 billion in debt, May might be willing to sell Marshall Field’s for less than it paid.

The Times also reported speculation that Federated might move to talk with Saks Inc. (Birmingham, Ala.), the regional department store chain that also owns Saks Fifth Avenue (New York). While SFA, under Fred Wilson’s one-year tenure, appears to be in a turnaround with a new team, Saks Inc.’s other stores, including Proffitt’s, could be ripe for a deal if Federated cannot get Marshall Field’s.

The battleground seems to have settled into the luxury department store market, where Neiman Marcus (Dallas) and its New York-based subsidiary, Bergdorf Goodman, and Nordstrom (Seattle) are recording double-digit sales increases. In response, May has been trying to return its stores, particularly Lord & Taylor, to their upscale roots. The purchase of Marshall Field’s was also intended to lift the chain. Likewise, Federated has invested hundreds of millions of dollars in Bloomingdale’s, its New York-based fashion subsidiary.

If Federated bought May’s, it would have a total of 960 stores — and many of them, analysts speculated, would probably have to go. Nordstrom reportedly said that “there would be interest in some of the locations that could be for sale if a merger were to occur.”

A big issue is “whether the Federal Trade Commission would allow a transaction of this size to occur, given the overlap between the two retailers,” Merrill Lynch has said in a report. Although the store locations dovetail pretty well in the East and Midwest, analysts and bankers say there are overlaps, particularly in California, that would present problems.