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Future of Post-Bankruptcy Macy’s Gets Interesting With BC-Macy-Chronology

January 23, 1994 GMT

NEW YORK (AP) _ The big question dominating New York’s retailing circles this year is whether Bloomingdale’s will buy Macy’s.

The answer, affecting not only Macy’s and Bloomie’s but suppliers, lenders and millions of ordinary shoppers, is: Who knows?

Federated Department Stores Inc., parent of Bloomingdale’s and other big department stores, jolted the post-Christmas retailing world in early January with word that it hoped to add Macy to its stable.

That announcement prompted intense speculation about the ultimate fate of Macy, the famed chain that’s been operating under bankruptcy court protection for two years because of a $6 billion debt load. If Federated doesn’t buy Macy, the reasoning went, perhaps someone else would.

Federated made its intentions clear in agreeing to buy a big creditor claim against Macy for $449.3 million. That will make Federated one of Macy’s most influential creditors.

Up until now, other Macy creditors publicly had shown patience with Macy, sensing the company was sincerely trying to improve its health and devise a plan to repay them. But the Federated move unearthed some impatience as well. Some big Macy bondholders, seeing an opportunity to boost the amount of money they’d get if outsiders were willing to acquire Macy’s, began courting other would-be buyers.

Macy bonds, which had been languishing, jumped in value on growing optimism about a takeover. There was an atmosphere of near-frenzy about Macy on Wall Street.

But it will be in a quieter venue - U.S. Bankruptcy Judge Burton R. Lifland’s Manhattan courtroom - where Macy’s future will be decided. It isn’t likely to happen soon.

One reason is that Macy still has the exclusive right to formulate a plan of reorganization, its proposal for repaying debts and re-emerging from the bankruptcy court refuge as a healthy business. That means nobody else can present a plan first.

Macy chairman Myron E. Ullman III has said to Federated, in public statements and in a televised message to employees, that Macy isn’t for sale. He has said Macy envisions independence and Federated is just another creditor.

Nonetheless, bankruptcy lawyers say Macy faces a struggle.

″I think they (Federated) have effectively put the company into play,″ said Sandra Mayerson, an attorney with the New York law firm McDermott Will & Emery.

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To thwart potential buyers, Macy must negotiate a reorganization plan acceptable to creditors. That may be difficult if some have other ideas.

Federated chairman Allen Questrom told securities analysts Friday his company’s plan for Macy is still in the conceptual stage. But he said a combined Federated-Macy would be more efficient and offer lower prices.

While Questrom has said he’s interested in all of Macy, he is believed to be particularly keen on getting back the Bullock’s and I. Magnin chains Macy bought in 1988.

He is not the only retailer with an eye on Macy. Dillard Department Stores Inc. has talked to Macy in the past about a possible acquisition, and has contacted the company recently through investment bankers.

″They’re most interested in the Atlanta region and down into Florida,″ Woody Whyte, an analyst with the investment firm Stephens Inc., said of Dillard. ″It’s highly unlikely they would bid for the entire chain.″

It is believed that May Department Stores Co., owner of chains including Lord & Taylor, Filene’s and Foley’s, may also eventually bid.

Macy contends that creditors would benefit in the long run if the company remains intact and follows its five-year business plan, a projection for sales and earnings formulated as part of the bankruptcy process.

″As far as our creditors are concerned, our primary responsibility is to maximize returns to them, and we think our plan will do that,″ Macy spokeswoman Laura Melillo said.

So far, Macy is reaching the goals in the plan, despite continual operating losses. It does enjoy some creditor support.

Robert Miller, an attorney representing Macy bondholders, said this past week he believes Macy has ″has done all the right things to date in terms of bettering the business. Mike Ullman’s done a great job.″

But Lifland might determine that a sale of some Macy operations may be in the best interests of everyone. The company ″probably needs to sell assets or close stores. Their earnings aren’t high enough,″ Ms. Mayerson said.

Other wild cards make it impossible to guess who will own Macy. One is the chance that an outside investor might bid.

Ever since Macy sought bankruptcy refuge, questions have persisted about the intentions of Laurence A. Tisch, the chairman of CBS Inc. and Loews Corp. Two years ago he tried to assemble a bailout plan that would have kept Macy out of bankruptcy court.

One reason that plan failed was resistance from Prudential Insurance Co. of America, then Macy’s largest creditor. Prudential, tired of waiting for its money, helped incite the latest speculation over Macy by agreeing to sell half its claim to Federated. The claim might translate into an ownership stake when Macy emerges from bankruptcy court.

Even that isn’t certain. Mark Roe, a bankruptcy law professor at Columbia University, noted that as part of its plan, Macy could simply pay the Federated claim.

Federated might bolster its position by presenting its plan in conjunction with other creditors or investors. Still other creditors may come up with their own proposals - meaning that there are many possible scenarios.

Regardless, none can present their proposals until Macy submits its own and Lifland has terminated the company’s exclusivity period. The bankruptcy proceedings could become protracted if creditors begin squabbling.

Moreover, Lifland must confirm any proposal. The judge has a reputation as a pro-debtor, especially if a company has strong management. But it is impossible to speculate on Lifland’s leanings either way.

″If Federated were to convince the creditor constitutency that they’ll do better under a Federated plan, I think it would be pretty tough to disregard,″ said Barry Zaretsky, a bankruptcy professor at Brooklyn Law School.

If Macy’s management loses control, creditors could unite and divvy up the company, Roe said. Or the judge could auction Macy’s pieces to see how much money could be generated to pay creditors.

With so many variables, Zaretsky said, ″it would be really tough to make some prediction on where this will turn out.″