May Not Happen

A report in The Wall Street Journal says merger negotiations between Federated Department Stores (Cincinnati) and The May Department Store Co. (St. Louis) have stalled over how much May would be willing to accept in an acquisition.

Also, said The Journal, some question whether the deal would make sense for Federated.

While a Federated-May merger would create a chain of nearly 1000 department stores in North America, at least one analyst’s report, quoted by The Journal, pointed out challenges to taking May’s 444 department stores “upscale” to appeal to the wealthier shoppers that frequent Federated’s Macy’s and Bloomingdale’s stores.

“It would not be particularly strategic given Federated’s objectives,” wrote Linda Kristiansen, global equity retail researcher for UBS Financial Services Inc. “One of the reasons we have been cautious on May is the moderate income demographics which surround most of its store base.” Appealing to higher-net-worth individuals has been a key part of Federated strategy, but it could be a challenge in many of May’s markets.

Another challenge would be what to do with stores that share the same mall or draw from the same local shoppers. Kristiansen speculated that because it took May two years to divest 35 Lord & Taylor stores, divesting two to three times that many stores after a Federated purchase could take up to six years. And, she said, any synergies created by May’s purchase of Marshall Field’s last year could be in jeopardy in a Federated merger.