Macy said to be leaning toward merger


Top executives of Federated Department Stores Inc. met yesterday with board members of R. H. Macy & Co. to present their plan for merging the two retail companies amid increasing signs that their long, turbulent courtship of Macy may finally pay off.

Allen I. Questrom, Federated's chairman and chief executive and one of the country's consummate salesmen, and other members of the Federated team regaled Macy's directors with their plans for converting certain of its stores to Macy's stores, which would give Macy's an even greater national reach.

They spoke of the savings that could be wrung from a consolidated company, estimated at about $100 million. And they tried to assuage any concerns directors might have about potential antitrust issues.

Whether the Federated group's persuasions won over Macy's board remains to be seen. Federated promised to provide directors with additional information during the next few days, and the board ended the session with promises to study Federated's proposal and to meet again on Friday, probably to ** take a vote.

Whatever the board decides, Macy's creditors will have the final say over any plan to retrieve the company from bankruptcy protection. But if the board approved a combined Macy-Federated plan of reorganization, it would end the

contentious game of one-upmanship that has pitted Macy against Federated for more than six months.

There are signs that Macy, which had vowed to emerge from bankruptcy protection as an independent company, has become less resistant to the idea of joining the Federated family of department stores, which include Bloomingdale's in New York, Rich's in the Atlanta area and the Bon Marche in the Pacific Northwest.

"I think this is much closer to a done deal than people realize," one person familiar with the interplay between Macy and Federated said.

Another person involved in the bankruptcy said: "In the last couple of weeks, it went from the people at Macy's saying, 'Not over our dead bodies,' to a sort of indifference to the idea of merging. Some are negative, but not too negative, and some are positive about it. I think they feel in some respects that it's inevitable."

The two companies been meeting since June 10 to discuss a possible combination, and some Macy executives have visited Federated's headquarters in Cincinnati in the past two weeks to help resolve complex financial issues that could snarl a merger.

Moreover, Federated has moved to mollify one potential opponent, the GE Capital Corp., by indicating that it will honor the terms of the financial services company's contract to handle all Macy credit card operations. GE Capital is a major Macy creditor, has two seats on Macy's board, and one of its own board members, Gertrude G. Michelson, also is a Macy director.

Macy has set three conditions for a merger, people close to the company said yesterday. First, it has asked Federated to satisfy Macy's board that its plan will create the value it has promised in its $3.9 billion bid for Macy. Second, Federated has been asked to detail how it will resolve potential antitrust issues.

The Federal Trade Commission and the New York State attorney general's office are reviewing whether a merger would result in a restraint of trade in those markets where Federated's stores compete with Macy's stores.

And finally, Macy has told Federated that it will not agree to a plan that does not receive approval from a consensus of its creditors, including the holders of its secured loans as well as its junk bonds.

Federated has yet to win over the holders of $1.3 billion worth of Macy junk bonds who have so far pledged their allegiance to Macy's own bankruptcy reorganization plan that would preserve the company's independence.

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