Macy Agrees To Merge with Federated With AM-Macy-Federated-History, BC-Macy-Chronology, BC-Macy-Federated- Thumbnail s

NEW YORK (AP) _ R.H. Macy & Co. Inc. relinquished its hopes of remaining independent Thursday, agreeing to merge with Federated Department Stores Inc. and form the nation's biggest department store company.

After a definitive merger agreement is reached and Macy emerges from bankruptcy court protection, its Macy's and Bullock's branches will join Bloomingdale's, Burdine's, Lazarus and other big department stores in Federated's portfolio.

Macy, which had hoped to return to public ownership under its current management, ended six months of opposition to Cincinnati-based Federated after weeks of negotiations between Macy and Federated executives and meetings by the Macy board last Friday and Thursday.

The companies said they expect to file a joint reorganization plan with U.S. Bankruptcy Court by Aug. 1. The plan calls for creditors to be repaid with $4.1 billion in cash, debt and stock in the combined company, and for Macy to emerge from bankruptcy court next January after three years under Chapter 11 protection.

All of Macy's creditor groups support the plan. Macy bondholders reached agreement with Federated Wednesday night after the company increased the money they will receive to $500 million, said Robert Miller, a bondholder representative.

Macy owes nearly $6 billion in bankruptcy debt. It was not immediately known how much of their claims each creditor class will receive, but many creditors were left with debts Macy won't be able to pay.

Thursday's announcement bore out the predictions of many analysts, who last January forecast victory for Federated chairman Allen Questrom. The company began its quest for Macy at the beginning of the year, buying a large bankruptcy claim against Macy.

Macy chairman Myron E. Ullman III, who has streamlined and reinvigorated the company over the past two years, wanted the company to be free-standing and publicly-owned after its bankruptcy case ended. In the end, he won a degree of independence for Macy when it becomes a division of Federated.

Ullman will become the merged company's deputy chairman, and join Questrom and Federated president James Zimmerman in a three-member Office of the Chairman.

The job returns Ullman to Federated employment. In the early 1980s he was executive vice president of Sanger Harris, then a Federated division.

Analysts expect a Macy-Federated combination to work.

''I think the merger will be a very successful one and will enable most of the stores to remain viable,'' said Walter Loeb, a longtime retail industry analyst and a former Macy executive.

''I think it's going to work out ... They're running tight ships,'' said Edward Johnson, an analyst with Johnson Redbook Service.

A merged Macy-Federated will have 341 department stores and will replace May Department Stores Co., which has 300, as the nation's biggest department store company. Their combined annual sales of $13.5 billion would make them the nation's sixth-largest retailer.

The marriage of Macy and Federated is contingent on several steps, starting with the formulation of a definitive merger agreement and approval by the boards of both companies.

Macy and Federated will then file their joint reorganization plan with bankruptcy court, where creditors and Judge Burton R. Lifland must approve it. However, because all classes of Macy creditors have already said they are supporting the plan, it will likely be confirmed.

The big question is whether Federated will have to divest itself of any stores because of antitrust concerns. The two companies overlap in the Northeast and the South, and state and federal officials are looking into whether a merger would violate antitrust laws.

Antitrust questions were among the details that held up an agreement, but a statement from Macy and Federated did not say how - or if - they had been resolved.

A Macy official, who spoke on condition of anonymity, said antitrust issues would be resolved in the definitive merger agreement.

Analysts have predicted for some time that some Macy stores would be sold - perhaps the Southern branches, which Dillard Department Stores Inc. has said it wants to buy. They also expect that some of the Northeastern Federated stores, including Abraham & Straus and Stern's, might be restructured or sold.

Other questions remained unanswered, including how many Macy or Federated workers will lose their jobs in the merger. There almost certainly will be cutbacks as redundant operations such as buying and record-keeping are pared.

Macy has alreay shed 20,000 employees during its reorganization, and now has 50,000 on its payroll.

Macy customers are not expected to detect many changes from a merger. Its stores are expected to retain their own character, although Macy's vendor lists are likely to be pared as Federated integrates Macy's buying operations into its on.

Macy owns 111 Macy and Bullock's stores. Federated's 230 stores include Bloomingdale's, Lazarus, Jordan Marsh, The Bon Marche, Abraham & Straus, Stern's, Burdine's, Rich's and Goldsmith's.

Federated sought the Macy and Bullock department stores to quickly and broadly expand its business. In January it bought half the bankruptcy claim held against Macy by Prudential Insurance Co. of America for $449 million.

The companies bargained separately with Macy creditors, but made little progress. In late February, Lifland appointed mediator Cyrus Vance to speed the talks.

Over the next three months, creditors split between Macy and Federated, and in late May, Lifland ordered Macy to file its reorganization plan. Federated, consigned at least temporarily to the sidelines, then approached Macy to discuss a joint merger plan.

Macy's bankruptcy case resulted from the billions of dollars in debt that former chairman Edward Finkelstein heaped on the company as he tried to turn it into a nationwide company.

Finkelstein took the company private in a $3.58 billion leveraged buyout in 1986, and two years later - after losing a bidding war for Federated to Campeau Corp. - spent $1.1 billion to buy Bullock's and I. Magnin, two Federated divisions.

Macy struggled on and off before finally succumbing to bankruptcy court protection in January 1992.

Federated and another Campeau company, Allied Stores Corp., also trekked through bankruptcy court after being hobbled by too much takeover debt. Federated and Allied were merged into one company, and emerged from court protection in February 1992 after having been downsized under Questrom's leadership.