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Macy-Federated Merger May Be Gaining Momentum Amid Talks


Representatives for R.H. Macy & Co. and Federated Department Stores met Wednesday to continue discussing a merger proposal that now appears to be gaining momentum.

The meeting was held in New York one day after a lengthy meeting between Macy Chairman Myron E. Ullman III and his Federated counterpart, Allen I. Questrom. Questrom sought Ullman's support for Federated's $4-billion plan to combine the two department store chains. Macy has resisted the merger offer since Federated first suggested it in January, but it now appears willing to consider such a deal after the Ullman-Questrom meeting.

New York-based Macy, whose holdings include the Bullock's and I. Magnin chains, is reorganizing under Chapter 11 bankruptcy protection and has proposed paying creditors $3.93 billion of its nearly $6 billion in outstanding debt under a preliminary reorganization proposal.

Negotiators did not reach an agreement Wednesday, but officials at Macy and Federated said discussions will continue. The companies would not comment further, citing a request by court-appointed mediator Cyrus Vance to refrain from publicly discussing bankruptcy negotiations.

Questrom has been trying to convince Ullman that Macy's reorganization proposal, which would maintain Macy as an independent company, would not be approved by New York Bankruptcy Court because major creditors support the Federated plan.

Under a Bankruptcy Court ruling, Macy has the exclusive right to file a more detailed reorganization plan with creditors, but it must submit that proposal by Aug. 1. Macy's secured creditors--those with collateral claims on Macy assets--were planning to ask the court to allow a detailed Federated plan to be considered before Aug. 1. However, those creditors have withheld that challenge because Macy and Federated are now discussing the merger proposal.

Macy's board last week postponed action on Federated's offer, citing concerns about the possibility of antitrust sanctions if a merger develops. Macy and Cincinnati-based Federated, which operates the Bloomingdale's chain, have competing retail operations in New York and many other cities.

Meanwhile, Federated continues to try to woo Macy bondholders who have not yet endorsed the merger plan.

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