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N.Y. Official Threatens to Block Macy Merger : Retailing: Attorney general proposes that 12 of its 13 stores in state be sold. Federated rejects the idea.

August 24, 1994|GEORGE WHITE | TIMES STAFF WRITER

New York's attorney general stepped into the planned merger of R.H. Macy & Co. and Federated Department Stores on Tuesday, announcing that he will seek to block it on antitrust grounds unless 12 of the 13 Macy's department stores in that state are sold.

Federated immediately rejected the idea, which would all but erase the venerable Macy's name--including the flagship department store and, presumably, Macy's annual Thanksgiving parade--from New York City. But both sides said they hope to negotiate a compromise.

Federated and the New York-based Macy, which also operates the Bullock's and I. Magnin chains, reached a tentative merger agreement July 13 and plan to combine operations by December. Although the Federal Trade Commission said last week that the merger poses no antitrust problems, state Atty. Gen. G. Oliver Koppell feels differently.

"The department store market is so concentrated that in some areas of New York, a combined Macy-Federated chain would have a virtual monopoly," Koppell said. "Vendors would be squeezed, jobs would be lost, prices would rise and consumer choice would be eliminated."

Koppell said he is proposing the sale of 12 Macy's stores situated in five New York state counties because Federated, which operates the Bloomingdale's and Abraham & Straus chains, also has stores in those communities.

However, Koppell, speaking at a news conference in New York City, also said he would consider alternative proposals from Federated. Koppell asked Federated to respond by Aug. 30.

Cincinnati-based Federated said it will continue to negotiate with the attorney general's staff to develop a plan that would address Koppell's concerns. However, the retailer expressed no interest in Koppell's proposal.

"The proposal would effectively wipe out Macy's name on the New York retail horizon, which makes little sense," Federated spokeswoman Carol Sanger said. "This matter is negotiable, but it's also a matter that could wind up in court."

If the parties are unable to reach an agreement, Koppell could file a lawsuit in state or federal court. However, Macy is in Chapter 11 bankruptcy reorganization and a Bankruptcy Court could claim jurisdiction of the matter.

Koppell's announcement came four days after the FTC, normally the last word on such antitrust matters, OKd the merger.

The U.S. Supreme Court has ruled that state officials have the power to sue to block mergers on antitrust grounds. However, it is unusual for a state attorney general and the FTC to reach different conclusions on merger-related issues, said David Slawson, a USC law professor.

"New York (antitrust) law may be stricter than federal provisions--or the New York state attorney general may think that's the case," Slawson said.

Federated wants the merger because department stores have been losing market share to specialty apparel chains and to discount chains, said Kurt Barnard, a New Jersey-based retail economist. Such a merger would give the retailer more leverage with vendors, allowing it to buy products more cheaply.

"The days of department stores competing only with other department stores are gone forever," Barnard said.

Other analysts suggested that Koppell's decision might be politically motivated. Koppell faces a primary election Sept. 13 and might benefit if he appears to be protecting consumers. Koppell denied that charge Tuesday.

A previous New York attorney general investigated the impact of a proposed merger between Federated and Macy in 1988, when Macy was trying to acquire Federated, said Richard Barr, a spokesman for Koppell. Because state officials were concerned that a Macy takeover of Federated would eliminate meaningful competition, Macy agreed to sell 11 stores, Barr said.

"At that time, Robert Abrams was state attorney general, and there was no election scheduled that year," said Barr, arguing the legitimacy of the antitrust issue.

Campeau Corp. eventually acquired much of Federated in a 1988 compromise that allowed Macy to obtain Federated's Bullock's and I. Magnin chains.

Macy has 111 Macy's and Bullock's stores nationwide. In California, the retailer has 24 Macy's stores, 20 Bullock's and 11 I. Magnin stores. Federated has 232 stores nationwide, none in California.

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