Mega-Mergers Meet Mishaps

While the Federated-May deal would create a retail juggernaut, other recent merger failures suggest that it might meet hazards along the way.
Stephen TaubMarch 1, 2005

The recent slips that have occurred after a number of high-profile, intra-industry merger announcement suggest that Federated Department Stores’ agreement to buy rival May Department Stores Co. might be far from a done deal, as they say on Wall Street.

On Sunday, Federated, which owns Macy’s and Bloomingdale’s, agreed to purchase May, which owns Lord & Taylor and Marshall Field’s, for $11 billion in cash and stock, according to The New York Times.

While the deal would create a retailing behemoth with more than 1,000 stores and $30 billion in sales, there might be hazards along the way. After all, on the day that the two department-store giants reportedly struck their merger agreement, Mylan Laboratories Inc. and King Pharmaceuticals, Inc. issued a statement that they had terminated their agreed-upon deal because they were unable to work out a revised transaction, according to The Wall Street Journal.

Mylan, a maker of generic drugs, was to purchase King, a branded drug maker, for $4 billion in stock. But the deal was threatened after King announced in December it would restate its earnings for 2002, 2003, and the first six months of 2004.

The breakup of the deal was a victory for billionaire investor and sometime-corporate raider Carl Icahn, who mounted an aggressive public campaign to kill the merger.

Meanwhile, Qwest Communications International Inc. may weigh in with a revised stock-and-cash offer for MCI, even though MCI already agreed to be acquired by Verizon Communications Inc., according to the Journal.

However, the paper’s sources said, Qwest will only alter its offer if MCI indicates it is willing to engage in a discussion with Qwest.

Even the Sears, Roebuck merger with Kmart Holding now may be derailed by an unidentified third-party bidder now that Sears CFO Glenn Richter has bolted for RR Donnelley & Sons Co. to become its new finance chief and executive vice president.

Vornado Realty Trust, which owns 4 percent of Sears’s shares, could be a possible last-minute buyer of the company, the Journal reported last week. That possibility looms even though hedge-fund manager Edward Lampert is both the chairman and largest shareholder of Kmart and a sizable investor in Sears.

Further, even SBC Communications’ acquisition of AT&T is not exactly sealed, given that the deal will probably need about a year to get regulatory approval. During that time, such things as missed earnings forecasts and new offers derail it, as the other recent merger mishaps show.

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