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Closing In On Macy's

Federated seen making its case to bondholders.

Federated Seen Making Its Case To Bondholders

Byline: RICH WILNER and DAVID MOIN



NEW YORK -- Federated Department Stores Inc. is not home yet in its quest to merge with R.H. Macy & Co., but it moved a few steps closer on Monday.


Federated met with Macy's bondholders in an effort to secure a crucial endorsement of its merger proposal from the creditor group.


While Federated didn't quite win the endorsement, sources close to the negotiations noted that the bondholders now seem to be leaning toward the Federated camp. More meetings will be held this week.


"Monday's talks were friendly, and some progress was made," said a source close to the negotiations, "but not enough to win the group's support."


As reported, the bondholders' committee withdrew its support from Macy's stand-alone plan last week after Federated increased its offer to the committee to $475 million


from $400 million. The bondholders successfully held out for more money and might now be delaying an endorsement of Federated's plan in the hopes of squeezing even more out of the retailer.


The bondholders' committee is expected to meet this week with Macy executives and financial advisers to see whether there is room for further bargaining.


Federated, meanwhile, is reportedly frustrated by Macy's unwillingness to agree to a merger and could be working with other creditor groups on a motion for Bankruptcy Judge Burton R. Lifland to lift Macy's exclusive right to submit a reorganization plan. Macy's right of exclusivity expires Aug. 1.


Last week, Robert Miller, counsel to the bondholders' committee, said there had been some discrepancies in the Macy's offer, which the bondholders' financial advisers, Houlihan, Lokey, Howard & Zukin, valued at $525 million to $570 million.


The questionable area centered on how much Macy stock bondholders would be eligible to purchase in the 90 days following the retailer's emergence from Chapter 11. Bondholders feared Macy's would limit the amount of stock to around 25 percent, but Macy's assured them they could purchase from 25 to 50 percent of the stock.


The bondholders' committee had been the only creditor group backing Macy's until officially assuming a neutral posture late last week. If the group decides to fully back Federated, Macy's chances of filing a plan -- no less, getting one approved by the bankruptcy court -- are greatly reduced.


On Monday, reports continued that Macy's is searching for an investor deliverer to sweeten its offer. The last time Macy's dug into its pockets to increase the size of the payout to creditors, it used gift certificates as part of the assets.


Those close to the case say Macy's is strapped for cash and is not likely to increase its payout any further.