The latest in a series of retail mergers, the deal is designed to create a juggernaut capable of competing with both high-end specialty stores and discounters such as Wal-Mart Stores Inc.
May is known for its Marshall Field's, Rich's and Lord & Taylor chains, which are particularly strong performers in the high-end market. In November, Kmart Holding Corp. agreed to buy Sears, Roebuck & Co. for $11.5 billion, further consolidating a competitive retail industry. Retail analysts note that mergers of this size typically reduce advertising cost and strengthen bargaining power with suppliers.
The boards of both companies approved the deal Sunday, which would create a company with 1,000 stores and approximately $30 billion in annual sales. The merger is still subject to regulator and shareholder approval. Federated and May said they hope to close the deal in the third quarter, the Associated Press reported.
"Today, we have taken the first step toward combining two of the best department store companies in America, creating a new retail company with truly national scope and presence," said Terry Lundgren, Federated's chairman, president and chief executive officer, according to the AP.
Federated expects the merger will begin contributing to the combined company's earnings per share in 2007, The Washington Post reported. The company estimates it will see $450 million in cost savings by 2007.