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Retailing Giant Is Waiting in Wings : Macy OKs Deal With Federated


The board of R.H. Macy & Co. on Thursday formally approved in principle an agreement to merge with Federated Department Stores Inc., a move that would create a retailing powerhouse that could give consumers greater shopping choices and lower prices.

But the deal could also lead to the loss of hundreds of jobs in California as some administrative positions are eliminated and poorly performing stores are closed.

The merger could shake up the California retailing market by boosting competition and bolstering the financial clout of troubled Macy, which operates Bullock's stores. It would alsomake it easier for Federated to carry out its previously announced plan to establish its Bloomingdale's stores in California by giving Federated access to Macy's distribution network and store sites.

Macy's merchandise-buying units in New York and San Francisco could experience some job cuts as the merged company eliminated some office workers from overlapping business operations. Some industry analysts said at least several thousand jobs could be lost in the consolidation--most of them middle management, purchasing, computer and clerical operations.

The two companies released no details on the proposed structure of a combined company and would not comment on store plans or possible layoffs. However, industry analysts and local retail observers say the new company would probably shut down some poorly performing stores in Macy's I. Magnin chain, which operates 11 stores and employs 1,850 people in California.

The agreement caps weeks of negotiations between Macy and Federated executives. By accepting the deal, Macy ended six months of opposition to Federated's overtures. New York-based Macy is reorganizing under Chapter 11 bankruptcy protection.

The companies said they expect to file a joint reorganization plan for Macy by Aug. 1, after a definitive merger agreement is reached and approved by their boards.

Under the tentative agreement, Macy's creditors would be repaid with $4.1 billion in cash, debt and stock in the combined company. Macy would then emerge from bankruptcy proceedings in January, after three years under Chapter 11 protection.

"We are tremendously pleased and gratified by Macy's action, and we are excited by the prospects of a combined Macy's and Federated retail operation," Federated Chairman Allen I. Questrom said in a statement Thursday.

"With the support and hard work of our 50,000 associates, the turnaround of Macy's is nearing completion," Macy Chairman Myron E. Ullman III said in the joint statement. "I am confident that the merger with Federated, as it is now proposed, will lead to the creation of one of the most vibrant companies in retailing."

Under the agreement, Ullman would become deputy chairman of the merged company and Questrom would serve as chairman. In addition, four members of Macy's current board--including Ullman--would join the 12-member Federated board.

The merger could occur shortly after a bankruptcy judge approves a reorganization plan. All of Macy's creditor groups now support the merger. The company's bondholders reached agreement with Federated on Wednesday night, and court approval of the plan is likely.

The deal would give Federated a much desired foothold in California. In addition to Bloomingdale's, Federated operates chains such as Burdine's and Lazarus, but it has no stores in California.

Macy operates 43 of its 111 Bullock's and Macy stores in California. The merged company would have more than 300 department stores and annual revenue exceeding $13 billion.

As for Macy, the deal would allow it to emerge from bankruptcy in sounder financial shape.

"A merger allows Macy to reduce its costs because there will be a consolidation," said Mark Levin, a senior analyst at Beverly Hills-based Dabney Resnick & Co., an investment bank that handles distressed securities. "Questrom has done a great job at Federated, and he can help accelerate the recovery process for Macy."

If the merger is approved, larger retailers in California will face a new level of competition.

"It will be very intense," said Jack Kyser, senior economist at the Economic Development Corp. of Los Angeles County. "A merger would make it tough for the Broadway Stores and for the Robinsons-May chain. It's bad news for people in the retail business, but it's good news for consumers because shoppers will have more options."

The combined retailer would have more buying clout, enabling it to acquire merchandise more cheaply and turn up the pressure on California competitors by eventually passing on some savings to consumers.

"While some people will lose their jobs, millions of consumers will benefit because there will be a greater variety of stores and more affordable pricing," said Kurt Barnard, a New York-based retail economist. "This deal will make all Macy and Federated department stores more competitive with discount chains."

The two companies hope to outline their plans for a Macy recovery in a statement that would be released within 60 days of the approval of the reorganization plan. The statement would detail the structure and operating plans of the combined company, as well as adding details on the consolidation.

A merger could be delayed by antitrust questions. Macy and Federated compete in many markets in the Northeast and South. Federal and state officials have said they will determine whether the proposed merger violates antitrust laws. * MERGER MANIA

Implications of the recent flurry of takeovers sweeping Corporate America. A1

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