The owners of two famous retailing rivals -- Bloomingdale's and Macy's -- are joining forces in a merger that would form the nation's largest department store company.
The parent companies of the two firms, Cincinnati-based Federated Department Stores Inc., which owns Burdines, Rich's, Abraham & Straus and the Bon Marche as well as Bloomingdale's, and New York City-based R.H. Macy & Co., which also owns Bullock's, I. Magnin and more than 100 specialty shops, yesterday announced an agreement in principle to merge, following months of tense and testy negotiations.
Macy's, which has been operating under Chapter 11 bankruptcy protection since January 1992, has been a reluctant bridegroom. Company officials until recently opposed the merger. But they faced continuing pressure from Federated, a long-time competitor, which had succeeded in convincing many of Macy's creditors that they had better chances of repayment if the two firms merged.
"Following a series of thorough and intensive discussions with Federated, we have concluded that the proposed combination, under the terms worked out, will maximize value for our creditors, lead to a consensual plan of reorganization and work to the long-term benefit of all our constituencies," said Myron E. Ullman III, Macy's chairman and chief executive, in a prepared statement.
Allen Questrom, Federated's chairman and chief executive, said Federated officials were "tremendously pleased and gratified" by Macy's action.
The companies' main franchises, Macy's and Bloomingdale's, have been direct competitors over the years, particularly in New York City, and Macy's- and Federated-owned stores dominate Atlanta and south Florida. Both offer a full range of merchandise, including housewares and furniture, as well as the "soft goods," such as clothing and cosmetics, available in most department stores. Both chains emphasize splashy promotions that lure the middle- to upper middle-income customer.
Macy's, a business icon that served as the setting for the Christmas classic "Miracle on 34th Street," and annually hosts the televised Thanksgiving Day Parade in New York City, would lose its autonomy. The company, founded in 1858, would become a subsidiary of Federated, although Federated generally has granted its subsidiaries much independence.
It is unclear what effect the merger may have on Washington area stores or employees here, although one Macy's official who spoke on condition of anonymity said the three area Macy's stores are among the chain's most profitable. The official said the future of the plans to build a Macy's store in downtown Silver Spring -- a cornerstone of Montgomery County's Silver Triangle project -- is more uncertain.
Bloomingdale's stores here also are likely to remain in operation because the Washington market is so strong, even when they are close to Macy's stores, such as at Tysons Corner, according to sources at Federated.
Federated and Macy's will file a joint plan of reorganization, probably by Aug. 1, which would permit Macy's to emerge from bankruptcy protection within six months. The combined company would have more than 300 stores and about $13 billion in annual revenue.
Federated and Macy's have had a tangled and sometimes stormy relationship in the past decade. Macy's, already saddled with a heavy debt load from a management buyout in 1986, attempted to buy Federated in 1988, but was outbid by Canadian developer Robert Campeau, who purchased Federated with borrowed money. Macy's instead bought two Federated subsidiaries, I. Magnin and Bullock's, also with borrowed money.
Both Federated and Macy's were left staggering under their debt loads, and then the recession hit. Federated crashed into bankruptcy court in 1990, but by 1992 it had emerged from bankruptcy and has since put its affairs in order.
Macy's sought bankruptcy court protection in January 1992 with about $6 billion in debt. Since then its prospects have brightened considerably.
Macy's creditors have played a key role in the company's decision to merge with Federated. Under the terms of the agreement, they would receive a compensation package worth about $4.1 billion in cash, debt and Federated stock, while the prospects for repayment by Macy's were less certain.
The merger plan is part of a continued consolidation in the department store arena. Where there once were dozens of small and medium-sized department store chains operating regionally, there now are only a handful of giant firms.
"It's a continual narrowing down of American department stores with the ultimate result there will be three or four chains that control the department store business in the United States," said retail analyst Peter Schaeffer of Dillon, Read & Co. "To the consumer it means more homogenized stores, stores that are similar and somewhat less competitive on pricing."
That prospect is troubling to Sen. Howard M. Metzenbaum (D-Ohio), who said he would ask the Justice Department's antitrust division to investigate the proposed merger. "I can't see any good that could come out of it and I can see a lot of bad," Metzenbaum said.
Metzenbaum said the only beneficiaries of the merger would be the chain's owners. He said he believes it will mean "higher prices for consumers and less competition."
Federated's successful bid for Macy's will unite two retailing powerhouses. A look at what each owns:
Aeropostale/Charter Club Stores
* Federated Department Stores Inc.
The Bon Marche
Abraham & Straus/Jordan Marsh
SOURCE: Hoover's Handbook of American Business