Success of Macy struggle with Federated is doubtful


June 05, 1994|By David Conn

It's been two and a half years since R.H. Macy & Co. filed for Chapter 11 bankruptcy protection. Last week its chairman, Myron E. Ullman, told securities analysts the company will file a reorganization plan with Bankruptcy Judge Burton R. Lifland on June 30.

But the company, which operates 111 stores, including three in Maryland, faces a takeover threat from Federated Department Stores Inc., of Cincinnati, which owns about $450 million of Macy's secured debt. What are the chances the New York-based retailer will emerge from bankruptcy as an independent company?

Peter A. Chapman

President, Bankruptcy Creditors' Service Inc.

Mr. Ullman is very convinced that he is going to be able to propose a stand-alone plan of reorganization, that he's going to file by June 30, and that the plan will be confirmed, and that the court will find that it is a fair plan, and that nobody's going to derail that process. And by the end of January Macy's going to emerge as a viable retailer and it's going to return to its place as a preeminent member of the retailing sector. That's all fine and dandy. Can't wait to see it happen.

The reality is that Macy has some very fundamental problems as far as how much debt there is, how much they can actually generate in sales over the next five years, and ultimately how much value can be pumped into a plan of reorganization, which will then be distributed to the creditors.

The chance of emerging is good. The chance of emerging with the people who sold the dresses getting paid in full -- forget it. But emerging from bankruptcy is not the problem. They do have to grapple with Federated.

My take on it is it is very unlikely that Macy will remain independent. They're pushing in every possible way to remain independent. But I see it as being very difficult.

Howard L. Davidowitz

Chairman, Davidowitz & Associates Inc.

My view is that they will emerge independent. Bankruptcy is a very complex process. What is the last company that emerged that didn't have a consensual plan that everybody agreed to? It's very difficult in real life. This case is being heard in front of Judge Lifland; this man is very famous for being a debtor-friendly judge. If the case is not consensual, I don't see how it's really going to fly.

Part of Federated's deal is, 'We're more efficient and we can cut more people.' [It's true that employees] are not a financial constituency. But I don't know how that's going to sit with Judge Lifland.

The bet will be that Macy's will go public in 15 months, 24 months.

The suppliers don't want Federated to get Macy's. They don't want anyone too powerful. The real estate people -- they're Federated's constituency.

Everybody knows that because of synergies, Federated could run the company $200 million to $300 million a year cheaper. But I think there's a big upside to Macy's going public.

Kurt Barnard

President, Barnard's Retail Consulting Group

At this moment I would say at best -- at best -- 50-50. Federated badly wants Macy and needs Macy. We haven't heard the final word from Federated.

Federated needs and wants Macy, has made a revised offer, and in all likelihood some modification of the original offer is going to come in some form that is more palatable to the other creditors.

Some creditor groups are now literally committed to Federated and others are not. I think Federated is likely to come up with a revised plan that is going to keep those who are committed, and win over those who aren't.

We heard some very interesting projections from Mike Ullman -- five-year projections. And like many projections they are based on optimism rather than precise measures. Meanwhile, competition is at a totally unprecedented point of fierceness in the retail marketplace. We are seeing especially two major retailers who are taking market share away from the department stores and the discount stores. They are Sears and J.C. Penney. Both are very moderately priced, middle-of-the-road department stores.

Ultimately only those major department stores will survive who make themselves accessible to the largest number of consumers, who find the department stores out of reach for them. And the only way to accomplish that is to make the stores as cost-effective and efficient as possible.

The only way this can be achieved is by leveraging yourself, by adding stores. And this is why Federated needs Macy and why ultimately Macy may be best served also by merging with a company such as Federated.

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