Merger Mystery

A new research report from Bear, Stearns & Co. (New York) said that if Federated Department Stores (Cincinnati) does acquire The May Department Store Co. (St. Louis), it would bring most May’s stores under its Macy’s umbrella, though it might keep May’s Marshall Field’s and Lord & Taylor nameplates as well as its own Bloomingdale’s name.

“The deal makes sense based on cost-savings opportunities and consolidation in the department-store industry,” said Bear, Stearns analyst Christine Augustine.

“The deal makes sense based on cost-savings opportunities and consolidation in the department-store industry,” Augustine noted in her report.

Bear Stearns also found:

• California and the Northeast could see up to 71 store closings, which might lead to $2 billion in lost sales (a tally that might rise higher from severance payments, inventory markdown and other charges linked to closings). May had $13.3 billion in sales in 2004 from 501 department stores. It employs 134,000 people, compared with Federated’s work force of 111,000. Federated posted $15.2 billion in sales in 2004 from its 459 stores.

• Federated would save $500 million by eliminating May’s corporate headquarters in St. Louis, combining human resources and other back-office operations, creating a better negotiating position with vendors and allowing Federated to expand its private-brand program to hundreds of new stores.

• Credit-card divisions at both companies could be sold to generate about $5 billion – cash that could be used to reduce debt.

• The deal is not likely to bring much antitrust scrutiny because the “competitive landscape” in the retail sector will include discounters and specialty stores, diluting any unfair advantages from a giant luxury retailer.