Women’s Wear Daily
04.20.2014
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fashion-features

Macy's Running On Empty

Hear Last Ally Looks For Deal With Federated.

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Hear Last Ally Looks For Deal With Federated

Byline: RICH WILNER and DAVID MOIN

NEW YORK -- R.H. Macy bondholders and their financial advisers reportedly will meet with Federated Department Stores today seeking an agreement that could bring the creditor group solidly behind Federated's plan to merge with Macy's. Without bondholders on its side, Macy's is unlikely to file its stand-alone plan. If the plan is filed anyway, it would be without the support of any Macy creditors and would have little chance of getting approved.


There have been reports that Federated, confident its plan will prevail, has already talked with certain high-ranking Macy officials about their future in a combined $14 billion Federated-Macy operation. There have also been reports that Federated has talked with May Department Stores and Dillard Department Stores about possible selloffs to avoid anti-trust violations. The bondholders are seeking further details on Federated's payout offer, which last week was sweetened from $400 million to $475 million.


The discussions between Houlihan, Lokey, Howard & Zukin Inc., financial advisers to the bondholders, and top Federated officials, reportedly will focus on detailed explanations of a complex set of warrants and Federated's merger strategy.


"The bondholders want to be sure of all the financial implications of a Macy-Federated merger and are looking to be assured that Federated stock, post-merger, will trade where Federated says it will," said a source close to the negotiations.


Federated has said its stock to be distributed to Macy creditors would be based on average trading prices within a range of $21 to $26 per share. The stock closed at 20 1/4 Friday on the New York Stock Exchange, from a high of 25 1/4 in the past year.


The source said he's confident that if the bondholders were not convinced by Federated that its stock would trade at the promised level that Federated would sweeten its offer again.


An agreement could come as early as today, sources said. Federated exeuctives were unavailable for comment Sunday.


On Friday, Robert Miller, counsel to the bondholders' committee, said bondholders were "officially uncommitted" to either a Federated or a Macy plan. Privately, sources said Federated is in the driver's seat and that the company's sweetened offer to Macy bondholders late last week may have done the trick. Previously, the bondholders were key supporters of Macy's approach.


While Macy's is running out of ammunition, the bankrupt retailer continued over the weekend to project a brave front in its battle to remain independent, stating it still intends to file its stand-alone plan of reorganization.
In an eleventh-hour scramble before a Macy board vote scheduled for Friday morning, Federated, as reported, raised its payout to bondholders to around $475 million from $400 million.


The Macy board reacted by putting off its vote on Federated's merger proposal after learning that bondholders had backed off from their full support of Macy's plan.


The bondholders' committee also found "major discrepancies with the Macy's offer and had made major progress with Federated," Miller said. The discrepancies seem to center on just how much of Macy's stock bondholders would have the right to purchase. Bondholders were promised the right to buy 25 to 50 percent of Macy common stock. However, according to sources, they feared that Macy's would limit them to the lower part of the range.


Bondholders are also expected to meet with Macy's this week, looking for a sweetened offer and possibly even to provoke a bidding war that Macy's would be ill-equipped to sustain.


Macy's offer to bondholders is valued at $525 million to $570 million. But Federated has argued that its own offer is a better one because Federated stock has a known value.


Senior creditors -- which include Federated's $500 million claim and Fidelity's $500 million -- have already thrown their support behind Federated.


Macy's hope for preserving its independence would be to bring in new money for a counter-offer to win back the bondholders. Chances of that seem slim, barring a white knight. There have been rumors that G.E. Capital Corp., which runs Macy's credit card operation, could put in some money. A Macy source said not to discount that as a possibility. Other potential Macy allies are Wharf Holdings, a cash-rich conglomerate in the Far East where Myron E. Ullman, Macy chairman and chief executive officer, once worked, and the Shaw Group, a Macy investor, controlled by Sir Run Run Shaw. However, the Macy source said they were "not viable" as potential white knights.


Macy's has just about used up its own resources, and its current $3.9 billion plan covers the full value of the company. The plan leaves little room for improving the offer for bondholders without taking something away from other creditors. The last time Macy's boosted its offer to bondholders, it had to resort to gift certificates.


However, Macy's said Friday in a statement it still plans to file a stand-alone plan of reorganization by Aug. 1, if various concerns regarding the merger are not satisfied.


Macy's also stated that it continues to believe a stand-alone plan would best serve the interests of creditors, customers, vendors and the communities where Macy stores operate.


While Macy's board continues to voice opposition to a merger, the company has left the door open to "continue to work with Federated to see if its concerns can be satisfactorily addressed, and is aware of some of the views of the creditor groups." "The main concerns regarding a merger relate to differing approaches to business strategy, execution, and operational issues, and anti-trust issues," Macy's said.


Up until Thursday -- a day before the vote was scheduled -- the majority of the Macy's board was ready to vote down Federated's plan.


"There was no question going into the board meeting, it was 11-to-one against the merger," a source close to Macy's said Friday. "But the news about Federated's new offer to bondholders may have triggered the delay."


Macy's has tentatively scheduled another board meeting for July 22.


Federated will continue to try to persuade Macy's to merge. It would be easier for Federated to get its plan approved if it had Macy's behind it, since the bankruptcy judge, Burton R. Lifland, is said to be pro-debtor.

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