Fidelity Management and Research Co., the huge mutual fund company that has played a pivotal role in R. H. Macy & Co.'s bankruptcy-law case, has added another powerful weapon to its arsenal -- about $80 million of the retailer's bonds.
By purchasing the bonds, Fidelity has begun to acquire the tools it needs to begin dismantling the biggest obstacle to a merger between Macy and Federated Department Stores: the opposition of the creditors' committee representing Macy's bondholders.
The committee has stymied Federated's bid for Macy, backing a proposal that would get Macy out of bankruptcy protection as a stand-alone company.
The bondholders' group is the lone holdout against a merger, which has been championed by Fidelity and Macy's other senior creditors. A condition set by Macy's board for accepting a merger with Federated is that the plan win the support of a consensus of Macy's creditors.
As a bondholder, Fidelity is in a position to create that consensus, a fact Macy's directors will no doubt take into consideration when they discuss the merger this morning.
"The real issue they're grappling with right now is how to satisfy the bondholders, and Fidelity may make that easier for them," said one person involved in the negotiations, who spoke on condition of anonymity.
But there were signs yesterday that the bondholders' opposition has begun to evaporate. Federated told Macy's board last week that it was willing to increase its offer to the bondholders to $475 million from $400 million, and people familiar with discussions between the bond holders and Federated said they were close to reaching an agreement, with only details remaining.
Robert Miller, the lawyer representing the bondholders' committee, said last night that the group had not accepted Federated's new offer yet. But he was less adamant about the group's commitment to Macy's stand-alone plan.
"We're still discussing details with Macy, and we're still listening to Federated," he said.
Federated and Mr. Miller continued to negotiate late last night, in hopes of announcing an agreement to Macy's board today that would pave the way for a merger.
Fidelity's purchase of the bonds puzzled some traders, who said they could see no clear strategy in it.
Fidelity, which owns $522 million of Macy's senior debt, has not amassed enough of the bonds to create a consensus without gaining allies among other bondholders.