The New York State Attorney General, G. Oliver Koppell, said yesterday that he would oppose the proposed merger of R. H. Macy & Company and Federated Department Stores Inc. unless Federated agreed to sell all 12 Macy's stores in the New York metropolitan area, including the chain's fabled store in Herald Square.
In a statement that stunned Federated and could bog down the effort to bring Macy out of the bankruptcy proceedings that have already stretched more than two years, Mr. Koppell said he had concluded that the proposed combination would decrease competition in the New York department store market, inevitably resulting in higher prices and fewer shopping choices for New Yorkers.
"We believe there is a way to remove the problem: divest all the Macy's stores," Mr. Koppell said at a news conference in his offices in lower Manhattan. He added that "unless we achieve what we seek to achieve, we will oppose the merger in court."
Mr. Koppell, a newly installed Attorney General who faces stiff opposition from three challengers in the Democratic primary next month, was appointed by the Legislature last December to serve out the term of Robert Abrams, who retired.
He said yesterday that he was open to suggestions from Federated on ways to address the problem.
Federated said it was "surprised and disappointed" by Mr. Koppell's statement, but it said that it had held "constructive" discussions with his office recently and that it expected that both sides would keep talking until they resolved the problem.
Federated noted that the Federal Trade Commission effectively cleared the merger last week, after a six-month review of antitrust concerns. Federated said that it believed there were no antitrust barriers to the proposed merger and that "neither the facts nor the law support the Attorney General's position in this matter."
On the New York Stock Exchange, shares of Federated lost 25 cents yesterday, to close at $20.125.
Various legal proceedings will tie up the proposed merger until December or so. After that, Federated has said, it will close or sell at least some stores in those areas where its Abraham & Straus, Stern's or Bloomingdale's stores are within steps of Macy's stores.
In the New York area, Macy has nine stores, in an area stretching from White Plains to Massapequa, L.I., that are close to an A.& S. store. Two other Macy's stores compete with Stern's outlets, while a Macy's store on Staten Island has no nearby Federated competition. Mr. Koppell proposed yesterday that Federated sell all 12 of those Macy stores.
When asked how he would feel if the Macy's Thanksgiving Day Parade was organized by a new owner as something like the "Sears Thanksgiving Day Parade," Mr. Koppell said, "It would not make any difference."
"I would still take my daughter to the parade," he said. "People still refer to the RCA Building, even though General Electric's name is on top, " he said referring to the Rockefeller Center building.
Federated has not disclosed plans for any specific stores. But a bankruptcy court filing that is expected next week will probably give some indication of Federated's intentions.
Union Praises Koppell
Union workers at Macy's and Federated stores, who fear a loss of jobs from the merger, generally welcomed Mr. Koppell's move yesterday. Speaking on behalf of 7,500 employees at Macy's, Bloomingdale's and Stern's department stores in the metropolitan area, Lenore Miller, president of the Retail, Wholesale and Department Store Union, said the union "applauded" the move.
"Mr. Koppell understands the negative impact that some mergers and business consolidations have had on working people," Ms. Miller said in a statement. "We thank the Attorney General and his office for leadership on this issue. Our union intends to support his efforts in this matter."
A number of retailing analysts said Mr. Koppell's move was politically motivated.
"I am sure Federated and Macy's are looking at which stores they will be able to sell," said Peter Schaeffer, senior retailing analyst at Dillon, Read & Company. "That is something they know a lot more about than the Attorney General does. And for him to blatantly say Macy's has to sell or close all of its stores in a particular area is ridiculous."
The Flagship Store
Selling Macy's Herald Square store, the nation's biggest-volume retail operation, would be daunting by itself, Mr. Schaeffer said.
With annual sales of around $400 million, "I don't know who would be able to buy it," he said.
Asked at the news conference about the timing of his announcement, Mr. Koppell said he was responding to "a number of communications we have received from others in the industry who are deeply concerned about the effects of the merger. "
"The fact that this is occurring during a political campaign is irrelevant," he said.
Antitrust lawyers said a merger of two retailing giants would obviously raise concerns about the impact on consumers and suppliers.
"The fact the F.T.C. did not take action to block the merger has to be encouraging to Macy's and Federated," said Harvey J. Goldschmid, a professor of law at Columbia University. "But I wouldn't dismiss the idea that there is something here."
Judge Could Hold the Key
Opinions were divided as to how the Attorney General's call for the sale of 12 Macy's stores would affect the merger. According to antitrust experts, much would depend on how Judge Burton R. Lifland, who is presiding in the Macy bankruptcy case, reacted to any antitrust suit.
"Once the Federal Government has signed off on the merger, there is an obligation for the bankruptcy court to proceed" on the merger, said one antitrust lawyer, who insisted on not being identified. "The state could file a motion seeking delay pending a presentation of the case they think they might have. How long the Attorney General can delay things all depends on the judge."
After a long struggle to remain independent, Macy agreed on July 14 to merge with Federated in a $4.1 billion combination. Macy has been under the protection of the Federal Bankruptcy Court since January 1992.
Analysts said that regardless of any antitrust actions, the combined operation would undoubtedly have fewer workers.
In a telephone interview, Carol Sanger, a Federated spokeswoman, said the company was exploring a number of alternatives that would shrink the combined company.
"In the operational context we are looking at all kinds of issues related to the combination of Macy's and Federated," Ms. Sanger said. "We have shared some of those business considerations with the Attorney General's staff."
In a recent analysis prepared by Tactical Retail Solutions, a New York retail consulting and research firm, Isaac Lagnado, a principal at the firm, estimated that Federated and Macy control about 11.4 percent of the general merchandise, apparel and furniture retailing market in New York.
In some categories of goods, like women's apparel, the combined share is as much as 20 percent, Mr. Lagnado said in an interview.
"Even if you take those higher shares, it still leaves three-quarters to four-fifths of the market wide open," he said. "It does not seem to me there are legitimate grounds for an antitrust action.
"This is the most opportunistic customer in the country, who shops everywhere from Filene's Basement to specialty stores. This is not a market that gravitates to department stores."
In Mr. Lagnado's opinion, the anticompetitive effects of the merger on suppliers are "even more overblown."
He noted that many suppliers have their own retail operations and are "very skilled at playing one store chain off against another."
The most likely result of yesterday's action by the Attorney General, Mr. Lagnado said, is that Federated and Macy will dispose of a handful of stores.
