Federated Department Stores has acquired May Department Stores in a $11-billion deal.
“This is truly an exciting day in American retailing,” said Terry J. Lundgren, Federated’s chairman, president and chief executive officer. “Today, we have taken the first step toward combining two of the best department store companies in America, creating a new retail company with truly national scope and presence.”
As part of this transaction, Federated has committed to increase its annual dividend to $1 per share.
The deal, which was approved by the boards of directors of both companies yesterday, will establish Federated as a $30 billion national retailer whose economies of scale and scope of operations – stores in 49 states, Guam, Puerto Rico and the District of Columbia – will enable it to compete more effectively in the highly competitive retail sector.
Completion of the deal is contingent on regulatory review and approval by the shareholders of both companies, a process that is expected to take several months. The transaction is expected to close in the third quarter of 2005.
Once consummated, Federated will operate more than 950 department stores, along with approximately 700 bridal and formalwear stores. In addition, 15 new states, mostly in the nation’s heartland, will be layered onto Federated’s existing 34-state operating base, with relatively little overlap between the companies’ locations. As a result, Federated for the first time will have a truly national retail footprint, with stores in 64 of the nation’s top 65 markets.
Lundgren said that this transaction is expected to be accretive to Federated’s earnings per share in 2007. Federated expects to realize approximately $450 million in cost synergies by 2007, resulting from the consolidation of central functions, division integrations and the adoption of best practices across the combined company. In addition, the company anticipates approximately $1 billion in one-time costs related to the acquisition and integration, spread out over a three-year period beginning in 2005.
“In today’s retail environment, competition comes from every conceivable retail format. To succeed, we have to operate more efficiently and compete more effectively against players at all levels of the retail demographic,” said John Dunham, May’s president and acting chairman and chief executive officer. “There is no question that this is a bold and exciting move, and one I believe will have a positive impact on competitive retailing for American consumers in the longer term.”
Federated said that while it intends to merge May’s St. Louis corporate headquarters functions into its own Cincinnati and New York corporate offices, beginning this year, its intention is to make St. Louis the headquarters of one of the major operating divisions going forward in order to take advantage of the considerable talent pool that exists there. Federated also said it intends to honor May’s extensive philanthropic commitments to the communities in which it operates, and to continue that practice.
While no division consolidations or store name changes are planned before 2006, Federated said it is likely that most of May’s regional department stores ultimately will be converted to Macy’s.
“We have had considerable success in re-branding our own regional stores as Macy’s, so obviously we anticipate continuing this strategy to some extent with our new stores,” Lundgren said. “Operating regional stores primarily under one brand means we can advertise nationally, unlike regional retailers, which is more cost-effective. It also means that cause-marketing programs such as Macy’s ‘Go Red for Women’ campaign, which benefits the American Heart Association, can be promoted nationally, making them more impactful for the causes they benefit.”
Murdok | Breaking eBusiness News
Your source for investigative ebusiness reporting and breaking news.
