The chairmen of the two companies met yesterday following a weekend announcement by Federated that it had bought a sizeable piece of Macy's distressed debt in a bid to gain control of the company by way of the bankruptcy process.
But Macy's chairman, Myron Ullman, said after his meeting with Federated's chairman Allen Questrom: 'It would be inappropriate at this juncture for Macy's to discuss with any particular creditor the specific role they would play in our reorganisation.'
Federated has agreed to pay dollars 449.3m for claims against Macy owned by Prudential Insurance Company of America and received an option to buy the remaining 50 per cent of Prudential's claims.
The news sharply pushed up secondary market prices on R H Macy junk bonds, with the price of its 14.5 per cent senior subordinated debentures due 1998 trading up to 50 from a price of only 41 last Friday.
The deal puts Federated in a strong position as creditors jockey for position in the bankruptcy process. If it exercises its option Federated will become the single largest senior secured creditor of Macy, giving it the power to block creditor moves it does not like.
These include the merging of the retailing operations of the two companies to create a store network with annual sales of around dollars 14bn. Federated owns the Bloomingdale's department store in Manhattan, plus 218 other stores located in 26 states, including the Abraham & Straus name. Macy operates 111 stores under the Macy name and the Bullock's and I Magnin chains.
Ironically, Macy bought Bullock's and I Magnin from Federated during a hostile takeover attempt for Federated during the 1980s, and the debt taken on to finance the acquisitions was a contributing factor in its subsequent filing for bankruptcy protection.
Federated has itself been through the bankruptcy process after taking on too much debt as a result of its own 1980s takeover by the Canadian property developer Robert Campeau. That highly leveraged deal relied heavily upon junk bond financing and the debt burden soon brought both Federated and Mr Campeau to their knees.
The aggressive move by Federated to gain control of Macy comes at a time of improving fortunes for US retailers. Profits at Federated were up strongly for the nine months to the end of October, to dollars 47.3m.
Analysts point out that the two retailing giants could increase profitability by cutting operating costs through a merger. However they warn that a merger of two such powerful retailers could run into anti-trust difficulties with the regulatory authorities.