Macy's parent Federated Department Stores Inc. said Tuesday that it would sell as many as six additional stores in Southern California under an agreement with regulators to complete its $11-billion purchase of May Department Stores Co.
Counting those added properties, including locations in Newport Beach and Woodland Hills, Federated will sell at least 26 Macy's and Robinsons-May stores in the region among the 75 it will close nationwide because they are near other company-owned properties.
Federated, which completed the acquisition Tuesday, agreed to give traditional competitors such as Nordstrom and Neiman Marcus priority in bidding on the stores to be sold.
That stipulation was negotiated by attorneys general in five states, including California, who sought to limit the effects of a deal that created the second-largest department store chain in the country. Only Sears Holdings Corp., created when Kmart Holding Corp. bought Sears, Roebuck & Co. for $12.3 billion in March, is bigger.
"The merger represents one of the most significant developments to hit the Southern California retail market in the last decade," California Atty. Gen. Bill Lockyer said in a statement. "Its potential effect on competition, prices, consumers and communities is substantial."
Also involved in talks were New York Atty. Gen. Eliot Spitzer and counterparts from Massachusetts, Pennsylvania and Maryland.
The officials feared that the combination would give Federated too much power with suppliers and also allow the company to raise its prices, said Burt P. Flickinger, a New York-based retail industry consultant. Sometimes, he said, regulators "will provide a protective shield around weaker retailers in a given sector for the sake of consumers."
The department store industry "has been relatively weak" in recent years, said another consultant, Greg Gotthardt of Alvarez & Marsal in Los Angeles. The agreement announced Tuesday will help other chains compete with Federated as well as with big-box retailers such as Target Corp. and Wal-Mart Stores Inc., he said.
"We had more space than we needed for business purposes," said Federated spokesman Jim Sluzewski. "Our intention was to divest to alleviate that situation. The attorneys general had different interests with competition."
The additional Southern California stores that Federated agreed to sell are all Macy's locations where there is also a Robinsons-May in the same mall or nearby. The stores are in Westminster Mall, Simi Valley Town Center, Fashion Island in Newport Beach and the Westfield Shoppingtown Promenade in Woodland Hills.
Federated agreed to accept qualified offers from one of its listed competitors, even if it received higher offers from other parties.
Nordstrom, which operates 45 stores in California, has said it will examine the targeted stores. The list of 13 approved buyers also includes Dillard's, Gottschalks and Saks Fifth Avenue.
Federated plans to operate all Robinsons-May and other May Co. stores under their existing nameplates at least through the end of this year.
Simi Valley Town Center is a new mall that will open next month with both a Macy's and a Robinsons-May. The Macy's site eventually will be sold; the Robinsons-May will become a Macy's. The Robinsons-May stores at Fashion Island and Westminster, like all others under that venerable Southern California brand, also will become Macy's locations. The Macy's men's and home furnishings store at the Promenade will be merged into the other Macy's store at that mall.
The agreement with the attorneys general also calls for Federated to sell its Macy's store at the Promenade in Temecula if it reaches an agreement with mall owner Forest City Enterprises to expand the existing Robinsons-May at that mall. The Macy's women's store at the Oaks in Thousand Oaks will be sold if it is not converted to a Bloomingdale's, another Federated brand.
Conversion of most May Co. stores to the Macy's brand is set for fall 2006; divestiture of duplicate May and Macy's locations will begin in 2006. The company reiterated its pledge to May employees Tuesday that there would be no layoffs as a result of the merger before March 1.
The Federal Trade Commission said in a statement Tuesday that it had closed its investigation of the deal and would allow it to proceed:
"We recognize that many individual consumers mourn the gradual disappearance of individual department stores in their hometowns. These changes, however, have been ongoing for many years. We have not been able to uncover any evidence that this particular merger will have any adverse effect on consumers as a whole."
A cash dividend of 25 cents a share will be paid Oct. 3 to Federated shareholders. A cash dividend of 24.5 cents will be paid Sept. 15 to May shareholders.
Federated shares fell $1.18, or 1.7%, to $69.48. With the closure of the deal, May shares were delisted Tuesday.