Bidding war brewing for Macy's

January 06, 1994|By New York Times News Service

NEW YORK -- While the titans of department-store retailing are squaring off to battle for R. H. Macy & Co.'s stores, the co-manager of an unusually brazen mutual fund is busy trying to line up their shots.

As the creditor wielding the most punch, Fidelity Investment's Capital and Income Fund -- or rather, one of its managers, Daniel Harmetz -- is being courted by the current players, while he is trying to get others to step up to the plate.

Mr. Harmetz met yesterday morning in New York with executives from Federated Department Stores, whose bold bid this week to merge with Macy stunned Wall Street and the retail community. In the afternoon, he met with executives from Macy.

Today he is scheduled to speak with executives from Dillard Department Stores Inc., another large retailer that has expressed an interest in buying all or part of Macy.

And for the past several months, Mr. Harmetz has been calling on department store merchants, trying to sell them on the merits of a marriage to Macy -- and increase the value of Capital and Income's holdings.

"He's not the puppet master, but it's clear he's trying to drum up a bidding war," said Max Holmes, the head of high-yield research at Salomon Bros.

Mr. Harmetz, who is in his early 30s, had no connection to Macy until it went bankrupt two years ago. He is not a merchant and is little known outside the tight circle of investors who pick up the pieces of bankrupt companies.

So how did he wrangle his way into the catbird seat in one of the biggest and sexiest bankruptcy cases on record? By quietly accumulating enough pieces of Macy debt to block any plans for reorganization, by Macy management or anyone else, that is not to his liking.

While Mr. Harmetz declined yesterday to discuss his meetings, he did agree to talk about his strategy, which he has used repeatedly as an investor in other bankruptcies and which he formulated as a student at Harvard Law School.

"My guiding philosophy is that you really need to get into [a] controlling position in a Chapter 11 and really be able to dictate what your stakes in the outcome will be," Mr. Harmetz said. "It's not rocket science, but you have to be somewhere as large as Fidelity, which has $300 billion in assets, to do it routinely."

Five percent of the Capital and Income Fund, or $140 million, is invested in Macy, the fund's single largest investment. Fidelity holds an additional $360 million of Macy debt in the company's other funds, including the Magellan Fund.

Even though he has come out on top in the bankruptcy, Mr. Harmetz said Fidelity would not be able to realize the return it could have had Macy gotten back on its feet more quickly, although the investment will still be lucrative.

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