Federated and May Announce Merger $17 Billion Transaction to Create
Value for Customers, Shareholders CINCINNATI, NEW YORK and ST.
LOUIS, Feb. 28 /PRNewswire-FirstCall/ -- Federated Department
Stores, Inc. (NYSE:FD) and The May Department Stores Company
(NYSE:MAY) today announced that they have entered into a merger
agreement. Pursuant to the transaction, each share of May will be
converted into the right to receive $17.75 per share of cash and
0.3115 shares of Federated stock. Based on the 10-day trading
average of Federated stock as of Friday, February 25, 2005, this
equates to a value per share of $35.50, or $11 billion in total
equity value. In addition, Federated will assume May debt that was
approximately $6 billion at year-end, for a total consideration of
approximately $17 billion. 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. "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." 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.
Synergies Created 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. Brand Conversions 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." Strong Benefits Among the benefits to customers
arising from the acquisition, Lundgren cited the capacity to lower
costs through synergies; the ability to engage in national
marketing initiatives; the potential to expand the private brand
merchandise lines of both companies; a rollout of Federated's
successful reinvent initiatives to May's department stores; and the
ability to expand customer loyalty programs and offer bridal and
gift registries to a national customer base. "For the customers of
both companies, joining together means we will be better able to
offer value and an improved retail experience, from better
assortments and merchandise selections to more competitive pricing
and service," Lundgren said. "For shareholders and employees,
joining together means we will be better able to meet competitive
challenges in the retail marketplace and better able to realize
growth opportunities over the longer term. And for the communities
we serve, joining these companies together means additional
opportunities for cause-marketing promotions and expanded
involvement in initiatives that facilitate our giving back in a
meaningful way to the places our customers and employees live and
work." Lundgren said the combination of these two companies is
expected to lead to accelerated same-store sales growth. "We expect
the sales of the combined company to grow faster as a result of
certain changes we would make, including introducing the best of
Federated's and May's private brands into each other's stores and
rolling out our reinvent initiatives to May stores." "It will take
us until mid-2007 to implement all of the changes we would
anticipate as a result of this acquisition, and we intend to take
the time necessary to do it right," Lundgren said. "Our first
priority is to continue to execute in all of our stores this year,
while we focus behind the scenes on consolidating corporate and
support operations." Federated was advised by and received a
fairness opinion from Goldman, Sachs & Co. In addition,
Federated also received financial advice on certain matters
pertaining to the merger from Credit Suisse First Boston LLC.
Jones, Day provided legal advice to Federated. May was advised by
Morgan Stanley Dean Witter, Inc. and received a fairness opinion
from Peter J. Solomon Company, Limited. Skadden Arps provided legal
advice to May. Stockholders are urged to read the joint proxy
statement/prospectus regarding the proposed transaction when it
becomes available, because it will contain important information.
Stockholders will be able to obtain a free copy of the joint proxy
statement/prospectus, as well as other filings containing
information about Federated and May, without charge, at the SEC's
Internet site (http://www.sec.gov/). Copies of the joint proxy
statement/prospectus and the filings with the SEC that will be
incorporated by reference in the joint proxy statement/prospectus
can also be obtained, without charge, by directing a request to
Federated, 7 West Seventh Street, Cincinnati, Ohio 45202,
Attention: Office of the Secretary, or to May, 611 Olive Street,
St. Louis, Missouri, 63101, Attention: Office of the Secretary. The
respective directors and executive officers of Federated and May
and other persons may be deemed to be participants in the
solicitation of proxies in respect of the proposed transaction.
Information regarding Federated's directors and executive officers
is available in its proxy statement filed with the SEC by Federated
on April 15, 2004, and information regarding May's directors and
executive officers is available in its proxy statement filed with
the SEC by May on April 22, 2004. Other information regarding the
participants in the proxy solicitation and a description of their
direct and indirect interests, by security holdings or otherwise,
will be contained the joint proxy statement/prospectus and other
relevant materials to be filed with the SEC when they become
available. This press release contains forward-looking statements
within the meaning of the Private Securities Litigation Reform Act
of 1995. Such statements include, but are not limited to,
statements about the benefits of the business combination
transaction involving Federated and May, including future financial
and operating results, the new company's plans, objectives,
expectations and intentions and other statements that are not
historical facts. Such statements are based upon the current
beliefs and expectations of Federated's and May's management and
are subject to significant risks and uncertainties. Actual results
may differ materially from those set forth in the forward-looking
statements because of a variety of factors, including: the ability
to obtain governmental approvals of the transaction on the proposed
terms and schedule; the failure of Federated and May stockholders
to approve the transaction; the risk that the businesses will not
be integrated successfully; the risk that the cost savings and any
other synergies from the transaction may not be fully realized or
may take longer to realize than expected; disruption from the
transaction making it more difficult to maintain relationships with
customers, employees or suppliers; transaction costs associated
with the renovation, conversion and stores, manufacturers' outlets,
off-price and discount stores, and all other retail channels; and
general consumer-spending levels, including the impact of the
availability and level of consumer debt, and the effects of
weather. Additional factors that could cause Federated's and May's
results to differ materially from those described in the
forward-looking statements can be found in the 2003 Annual Reports
on Forms 10-K of Federated and May filed with the SEC and available
at the SEC's Internet site (http://www.sec.gov/). About Federated:
111,000 employees in 34 states. Founded 1929, headquartered in
Cincinnati, OH, with corporate offices in Cincinnati and New York.
Federated currently operates more than 450 stores in 34 states,
Guam and Puerto Rico under the names of Macy's, Bloomingdale's,
Bon-Macy's, Burdines-Macy's, Goldsmith's-Macy's, Lazarus-Macy's and
Rich's-Macy's. The company also operates macys.com and
Bloomingdale's By Mail. Federated is converting all regional
department stores to Macy's brand effective March 6, 2005. Annual
sales: $15.6 billion. About May: 132,000 employees in 46 states.
Founded 1910, headquartered in St. Louis, MO. At the end of the
fiscal 2004, May operated 491 department stores under the names of
Famous-Barr, Filene's, Foley's, Hecht's, Kaufmann's, Lord &
Taylor, L.S. Ayres, Marshall Field's, Meier & Frank,
Robinsons-May, Strawbridge's, and The Jones Store, as well as 239
David's Bridal stores, 449 After Hours Formalwear stores, and 11
Priscilla of Boston stores. May currently operates in 46 states,
the District of Columbia, and Puerto Rico. Annual sales: $14.4
billion. EDITOR'S NOTES: * There will be a live webcast of a call
with investors and analysts beginning at 10 a.m. ET today. This
call can be accessed through the Federated website, or by dialing
in at 1-800-659-4363 to listen to the broadcast in real time.
Pre-registration is requested. The webcast will be archived for
replay beginning approximately two hours after the conclusion of
the live call. * In addition, a press conference to discuss today's
announcement will be held beginning at 11 a.m. at the Rihga Royal
Hotel, 151 West 54th Street, New York City. Excerpts from that
press conference will be taped and made available via satellite
uplink later this afternoon. A media advisory with instructions for
accessing that satellite feed will be issued via Business Wire
later today as well. * Additional information on Federated is
available on the Internet at http://www.fds.com/pressroom and
additional information on May is available at
http://www.mayco.com/. Contacts: Media - Carol Sanger 513/579-7764
Investor - Susan Robinson 513/579-7780 DATASOURCE: Federated
Department Stores, Inc. CONTACT: Media - Carol Sanger,
+1-513-579-7764, or Investor - Susan Robinson, +1-513-579-7780,
both for Federated Department Stores, Inc. Web site:
http://www.fds.com/pressroom http://www.mayco.com/
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