Federated Outlines May Plans

Sixty-eight stores will be sold after Christmas.
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Federated Department Stores

(FD)

outlined some of its post-merger plans for

May

(MAY)

on Thursday, which include real estate sales and an extension of its Macy's chain.

If its acquisition of May wins final regulatory approval, Federated said it plans to sell off 68 of the retailer's stores that overlap with its own store locations after the holiday selling season. The stores are located in 66 different malls and make up roughly $2 billion in annual sales, Federated said.

"Some of the locations where they're going to be divesting stores are pretty high-traffic areas, where either developers would want to purchase the store back or a competitor, like

Nordstrom

(JWN) - Get Report

, might want to move in," said Morningstar analyst Kim Picciola. "This should benefit them, at least in the short-term."

Goldman Sachs analyst Adrianne Shapira said the number of stores earmarked for sale exceeded her expectations.

"The announcement should facilitate the planning process, resolve internal questions and fears that could prove distractions headed into

the holiday season, and potentially facilitate FTC approval

so the deal could close in the third quarter," said Shapira, whose firm is acting as a financial adviser to Federated in its proposed merger.

Federated's chief executive, Terry J. Lundgren, stuck with his pledge not to eliminate any jobs before next March.

In a statement, he also said the retailer plans to convert 330 May company stores to the Macy's nameplate, which would bring the total store count for the Macy's chain to 730. It plans to keep the Lord & Taylor name, currently with 58 stores, and it is delaying a decision about Marshall Field's, which has 60 stores. Longtime retail names from the May empire will disappear, like Famous-Barr, Filene's, Hecht's and Kaufmann's.

"Macy's emerged as a premier national retailer in March 2005, when we changed Federated's regional department store nameplates," Lundgren said in a statement. "We will continue that process in 2006 by converting many of May Company's regional store nameplates to Macy's."

The plan fits in with a series of consolidation plans that have been hatched recently in the retail sector, where many observers have said the shopping landscape is "over-stored." It also bears some resemblance to the

Sears Holdings

(SHLD)

merger of Sears and Kmart. Investors are expecting an extension of the lucrative store sales that boosted shares of Kmart last year, along with a conversion of some Kmart locations to the Sears nameplate.

Both Federated and May shareholders have voted to approve the merger. Shares of Federated were recently up 61 cents, or 0.8%, to $76.38; while shares of May were up 30 cents, or 0.7%, to $41.20.