NEW YORK -- This week may mark the beginning of the end of Macy's 136 years as an independent merchant.
Besieged by creditors, Macy's management is working furiously to cobble together a reorganization plan that would keep the bankrupt retailer out of the clutches of archrival Federated Department Stores, which wants to merge the two chains.
Staying independent is becoming increasingly difficult, though, as Macy's creditors and board members have begun bickering over the retailer's value. This squabbling has led one pivotal creditor -- the Fidelity mutual fund group -- to threaten to align itself with Federated, rather than going along with a plan by Macy's management to keep the chain independent.
Macy's board met yesterday to try to resolve the valuation issue, which erupted late last week amid conflict of interest charges leveled at board member Laurence Tisch, chairman of Loews Corp., which holds $52 million in Macy's bonds. Mr. Tisch is pushing for a $3.8 billion valuation, which would treat bondholders better than the $3.2 billion to $3.5 billion valuation proposed by Macy's financial advisers.
One source said that discussions are expected to resume today, just one day before Macy's management presents an outline of its reorganization plan to secured creditors, who must be repaid first.
On one side of the fractious battle are Macy's unsecured creditors, including bondholders and suppliers, who say that Macy is worth nearly $4 billion. They favor placing a higher value on the company because that improves the payment they would get for their claims.
Lining up against this group are the secured creditors, including Fidelity. Most of these creditors would get stock under Macy's proposed plan, but they balk at placing a value higher than $3.5 billion on the retailer. That's because the higher the value placed on Macy, the less stock these creditors will receive. In many recent bankruptcy cases, stock has ended up being far more valuable than secured creditors' original claims.
Fidelity Investments, which owns about $500 million of Macy's secured debt -- roughly 21 percent -- issued a statement yesterday supporting a reorganization plan put together by Macy's management that values the company at $3.5 billion.