III FDM deal info

1 FD MAY 1.txt BN Page of 02/28 Federated to Buy May for $11 Bln; Lundgren to Lead (Update10) (Adds breakup fee in 14th paragraph.) By Rachel Katz and Dan Lonkevich Feb 28 (Bloomberg) Federated Department Stores Inc., the owner of Macy's and Bloomingdale's, agreed to buy May Department Stores Co for $11 billion to become the second-biggest U.S department-store company Federated will pay $35.50 in cash and stock for each May share and assume $6 billion in debt, the companies said in a statement today Federated Chief Executive Terry Lundgren will run the new company with more than 1,600 stores and $31.2 billion in sales, second only to the soon-to-be-combined Kmart Holding Corp and Sears, Roebuck & Co ``It's all about scale,'' said John Zielinski, who helps manage about $82.9 billion at Chicago-based Neuberger Berman, which owns Federated and May shares ``The more scale you can bring if you're a buyer of goods, the better position you're in to negotiate with vendors.'' The purchase allows Federated to save $450 million by 2007 as department stores get squeezed by discounters including WalMart Stores Inc and luxury chains Minneapolis-based Target Corp., the No U.S discount retailer, posted a same-store sales gain last year of 5.3 percent while Dallas-based Neiman Marcus Group Inc jumped 12 percent in the year ended July 31 May's comparable sales declined 2.4 percent in 2004 and Federated's increased 2.6 percent `Buggy-whip Business' ``If you are in a department-store business, which is a buggy-whip business, why would you want to buy another buggy-whip company also losing market share?'' Howard Davidowitz, chairman of the retail consulting and investment-banking firm Davidowitz & Associates Inc., said in an interview ``If you got some cash, buy a growth business'' such as Best Buy Co and other specialty chains away from malls The acquisition is the biggest in U.S retail history if debt is included in the total value, according to Bloomberg data The deal catapults Federated over J.C Penney Co as the No U.S department-store company In November Troy, Michigan-based Kmart, led by Chairman and billionaire Eddie Lampert, announced plans to buy Hoffman Estates, Illinois-based Sears for $11 billion, giving the combined company about 3,400 stores and $55 billion in annual revenue Federated said it's likely that most of May's regional chains, such as Hecht's, Strawbridge's, Foley's, will be converted to the Macy's name It carries more cachet with -==================== -Copyright (c) 2004, Bloomberg, L P Page of consumers partly because of the annual Macy's Thanksgiving Day Parade, said George Whalin of Retail Management Consultants in San Marcos, California `Much Stronger' Page FD MAY 1.txt ``We will be much a stronger, faster-growing company'' together than separately, Lundgren said today The new company will benefit from May's locations and be better able to market merchandise across the nation as well as tailor it to local markets, he said The purchase price represents a premium of less than percent over May's closing price on Feb 25 Shares of Cincinnati-based Federated fell 34 cents to $56.45 at 4:04 p.m in New York Stock Exchange composite trading They have fallen 1.1 percent since Jan 19, the day before the Wall Street Journal reported the companies were in talks St Louisbased May, which also owns Marshall Field's and Lord & Taylor, fell 84 cents to $34.51 Shares have risen 10 percent since Jan 19 The Bloomberg U.S Retail Index has declined 0.1 percent since then Federated, which plans to increase its dividend to $1 a share, will have about $1 billion in purchase expenses to be spread across three years The companies set a breakup fee of $350 million, according to a Securities and Exchange Commission filing Price Sensitive Lundgren, 52, said on Feb 22 that he wouldn't overpay for acquisitions Federated will pay May investors $17.75 and 0.3117 shares of Federated stock for each May share ``It looks like a very balanced price benefiting both sets of shareholders,'' said New York-based Bill Dreher, an analyst at Deutsche Bank, who rates both companies ``hold.'' ``It definitely looks like Federated did not overpay.'' Federated was advised by Goldman Sachs Group Inc and Credit Suisse First Boston LLC The advisers probably earned $8 million in fees, according to Bloomberg data Jones, Day provided legal advice to Federated The deal vaulted Goldman back to the top of the merger rankings Goldman has advised on $127 billion of deals compared with Merrill Lynch's $124 billion and Morgan Stanley's $103 billion CSFB jumped to sixth place with $51.6 billion worth of deals Morgan Stanley Morgan Stanley and Peter J Solomon Company Ltd worked with May Its advisers may have earned $13 million Skadden Arps -==================== -Copyright (c) 2004, Bloomberg, L P Page of provided legal advice to May The Federated transaction adds to the multibillion-dollar U.S mergers in the past year that have included Procter & Gamble Co.'s $52.4 billion purchase of Gillette Co., JPMorgan Chase & Co.'s $58 billion acquisition of Bank One Corp and SBC Communications Inc.'s purchase of AT&T Corp for $16 billion After Federated and May failed to reach a merger agreement a few years ago, the Jan 14 resignation of May Chief Executive Eugene Kahn made the acquisition easier, Davidowitz said The merger comes about two years after Lundgren took over as chief executive at Federated He's boosted sales by expanding private brands, including INC International Concepts and Charter Club Private-label brands have higher margins because the items are ordered directly from manufacturers Page FD MAY 1.txt Private Brands Federated, which owns the Rich's, Goldsmith's and Lazarus chains, is also converting 423 regional chain stores to Macy's by March May hasn't been as successful with its private brands, which include i.e and Identity, and would benefit from Federated's merchandising savvy ``Federated management is superb, with a great plan focused on fashion for the value and new labels and designers,'' said Deutsche Bank's Dreher ``The May department-store base would be better utilized by Federated.'' May's stores are mostly in Midwestern states including Illinois, Texas, Colorado and Missouri At the end of fiscal 2004, May operated 491 department stores under the names including Famous-Barr, Filene's, Foley's and Kaufmann's It also operates 239 bridal and other specialty stores Federated's more than 450 locations are mostly in more affluent regions on the East and West coasts The company may have to close or sell about 75 stores because of overlapping locations, wrote New York-based UBS analyst Linda Kristiansen, who rates May ``neutral'' and Federated a ``buy.'' Twenty-five may be closed in other markets National Ads Converting May chains to Macy's will allow Federated to emphasize fashion apparel in national television advertising, said Britt Beemer, chairman of market research firm America's Research Group in Charleston, South Carolina ``Macy's will be basically in every major market in the country,'' Beemer said in an interview May last July bought the Marshall Field's chain from Target for about $3.2 billion after Federated chose not to pursue a deal Chief Financial Officer Karen Hoguet said at the time that -==================== -Copyright (c) 2004, Bloomberg, L P Page of Federated would be ``disciplined'' in paying for acquisitions The merger is the latest in almost a century of consolidation among department-store chains Federated was formed in 1929 as a holding company for companies including family owned Abraham & Straus, F&R Lazarus and Filene's, which is now part of May It purchased Macy's in 1994 Companies' History May, founded in 1877, created the Famous-Barr chain after acquiring the William Barr Dry Goods Company and The Famous Clothing Store in 1911 The company went on to buy chains including Hecht's, Kaufmann's and Strawbridge's Today's acquisition makes it less likely that Dillard's Inc or Saks Inc.'s department-store group, which includes the Carson Pirie Scott and Proffitt's chains, may be bought because Federated would be the most likely buyer, UBS's Kristiansen said The deal would also reduce the potential for Saks and Dillard's to sell underperforming stores because closures of May stores would increase the number of empty stores on the market The deal is expected to close in the third quarter The combination may get close scrutiny at the Federal Trade Page FD MAY 1.txt Commission should antitrust enforcers decide that department stores constitute a separate retail market, said Robert Doyle, a former FTC official and a Washington antitrust lawyer ``There are about 100 malls throughout the United States where both a May and a Federated department store are the key department stores,'' Doyle said The FTC might require the companies to sell stores in such malls to preserve competition Yields on Federated 6.9 percent coupon bonds maturing in 2029 narrowed to 122 basis points more than Treasuries after widening to as much as 126 basis points today, according to Trace, the bond price reporting system of the NASD The spread was 123 basis points on Feb 25 and 126 basis points on Feb 1, according to Trace Yield spreads on May's 6.65 percent coupon bonds maturing in 2024 narrowed to 122 basis points from 125 basis points on Feb 25 A basis point is 0.01 of a percentage point With reporting by Mindy Spangler, Howard Liberman and Mark Pittman in New York and Jim Rowley in Washington Editors: Bielski, Kraus, Kirner, Bielski, Mirabella, Siler Story illustration: For a history of Federated's corporate actions, including acquisitions, see {FD US CACS } For a series of Bloomberg functions about Federated, see {CNP 10522190104 } Press the space bar to pause and the key to continue To contact the reporter on this story: -==================== -Copyright (c) 2004, Bloomberg, L P Page of Rachel Katz in Princeton at (609) 750-4653 or rkatz3@bloomberg.net; Dan Lonkevich in New York at (1) (212) 8935811 or dlonkevich@bloomberg.net To contact the editor responsible for this story: Vince Bielski at (212) 318-2077 or vbielski@bloomberg.net [TAGINFO] Company news: FD US CN MAY US CN DDS US CN SKS US CN NI NI NI NI NI NI NI NI NI NI codes: US COS RET CONS OH MO MNA CLO NY ## Page UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C 20549 FORM 8-K CURRENT REPORT Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 Date of report (Date of earliest event reported): February 27, 2005 FEDERATED DEPARTMENT STORES, INC (Exact Name of Registrant as Specified in Charter) Delaware (State or Other Jurisdiction of Incorporation) 1-13536 (Commission File Numbers) West Seventh Street Cincinnati, Ohio and 151 West 34 th Street New York, New York (Address of Principal Executive Offices) 13-3324058 (I.R.S Employer Identification Nos.) 45202 10001 (Zip Code) Registrant’s telephone number, including area code: (513) 579-7000; (212) 494-1602 N/A (Former Name or Former Address, if Changed Since Last Report) Check the appropriate box below if the Form 8-K is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions: ý Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425) ă Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12) ă Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b)) 2005 EDGAR Online, Inc ă Pre-commencement communications pursuant to Rule 13e -4(c) under the Exchange Act (17 CFR 240.13e-4(c)) Item 1.01 Entry into a Material Definitive Agreement On February 27, 2005, Federated Department Stores, Inc., a Delaware corporation (“Federated”), entered into a merger agreement (the “Merger Agreement”) with The May Department Stores Company, a Delaware corporation (“May”), and Milan Acquisition Corp., a Delaware corporation and a direct wholly owned subsidiary of Federated (“Merger Sub”) The Merger Agreement provides that, upon the terms and subject to the conditions set forth in the Merger Agreement, May will merge with and into Merger Sub, with Merger Sub continuing as the surviving corporation and a direct wholly owned subsidiary of Federated (the “Merger”) At the effective time and as a result of the Merger, May stockholders will be entitled to receive in exchange for each issued and outstanding share of May common stock (i) $17.75 in cash and (ii) 0.3115 shares of Federated common stock The closing prices of Federated and May shares on Friday, February 25, 2005, were $56.79 and $35.35, respectively The receipt of Federated common stock by May stockholders in the Merger is expected to be tax free for U.S federal income tax purposes However, if the price of Federated common stock declines such that the receipt of the stock consideration would no longer be tax free, then Federated has the option to increase the stock consideration to achieve such tax free treatment If Federated does not exercise this option, May has the option to require the cash consideration to be increased by $1.00 per May common share Following the Merger, May’s stockholders will own approximately 35% of Federated’s common stock and Federated’s stockholders will own approximately 65% of Federated’s common stock All outstanding May stock options (whether vested or unvested) will be assumed by Federated Each such option previously exercisable for May common shares will then become exercisable for Federated common shares Federated and May have made customary representations, warranties and covenants in the Merger Agreement The completion of the Merger is subject to approval by the stockholders of each of Federated and May and the satisfaction of customary conditions, including antitrust approval The Merger Agreement contains certain termination rights for both Federated and May If Federated terminates the Merger Agreement because May’s Board of Directors withdraws its recommendation of the deal, or May terminates to accept an alternative transaction, or if the Merger Agreement is terminated in certain circumstances and May enters into or consummates another transaction within one year of such termination, then May will owe Federated a $350 million termination fee If May terminates because Federated’s Board of Directors withdraws its recommendation of the deal, then Federated will owe May a $350 million termination fee If the Merger Agreement is terminated because the Merger has not closed by August 31, 2006, and all conditions to the closing have been met other than the receipt of antitrust approval, then Federated will owe May $350 million If May terminates the Merger Agreement because the Merger has been permanently enjoined, and all other conditions to the closing have been met, then Federated will owe May a fee equal to the product of (i) $20 million and (ii) the quotient determined by dividing (A) the number of calendar days between the date of the Merger Agreement and the date of such termination by (B) 30, provided that the amount of such fee shall not be less than $150 million or more than $350 million The foregoing description of the Merger and the Merger Agreement does not purport to be complete and is qualified in its entirety by reference to the complete text of the Merger Agreement, which is filed as Exhibit 2.1 hereto and incorporated herein by reference Item 9.01 Financial Statements and Exhibits (c) Exhibits The following exhibits are filed with this report:  2005 EDGAR Online, Inc Exhibit No 2.1 99.1 Exhibit Description Agreement and Plan of Merger, dated February 27, 2005, by and among Federated Department Stores, Inc., The May Department Stores Company and Milan Acquisition Corp (the registrant will furnish supplementally a copy of the schedules to the Commission upon request) Press release issued jointly by Federated Department Stores, Inc and The May Department Stores Company, dated February 28, 2005 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized FEDERATED DEPARTMENT STORES, INC /s/ Dennis J Broderick By: Dennis J Broderick Senior Vice President, General Counsel and Secretary Date: February 28, 2005 EXHIBIT INDEX Exhibit No 2.1 99.1 Exhibit Description Agreement and Plan of Merger, dated February 27, 2005, by and among Federated Department Stores, Inc., The May Department Stores Company and Milan Acquisition Corp (incorporated by reference to Exhibit 2.1 to Form 8-K filed February 28, 2005 by The May Department Stores Company) Press release issued jointly by Federated Department Stores, Inc and The May Department Stores Company, dated February 28, 2005 Exhibit 99.1 Contacts:  2005 EDGAR Online, Inc 10 Media Investor - Carol Sanger 513/579-7764 Susan Robinson 513/579-7780 FOR IMMEDIATE RELEASE FEDERATED AND MAY ANNOUNCE MERGER $17 billion transaction to create value for customers, shareholders CINCINNATI, NEW YORK AND ST LOUIS, February 28, 2005 — Federated Department Stores, Inc (NYSE: FD) and The May Department Stores Company (NYSE: MAY) today announced that they have entered into a merger agreement Pursuant to the transaction, each share of May will be converted into the right to receive $17.75 per share of cash and 0.3115 shares of Federated stock Based on the 10-day trading average of Federated stock as of Friday, February 25, 2005, this equates to a value per share of $35.50, or $11 billion in total equity value In addition, Federated will assume May debt that was approximately $6 billion at year-end, for a total consideration of approximately $17 billion As part of this transaction, Federated has committed to increase its annual dividend to $1 per share The deal, which was approved by the boards of directors of both companies yesterday, will establish Federated as a $30 billion national retailer whose economies of scale and scope of operations – stores in 49 states, Guam, Puerto Rico and the District of Columbia – will enable it to compete more effectively in the highly competitive retail sector “This is truly an exciting day in American retailing,” said Terry J Lundgren, Federated’s chairman, president and chief executive officer “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.” Completion of the deal is contingent on regulatory review and approval by the shareholders of both companies, a process that is expected to take several months The transaction is expected to close in the third quarter of 2005 Synergies Created Once consummated, Federated will operate more than 950 department stores, along with approximately 700 bridal and formalwear stores In addition, 15 new states, mostly in the nation’s heartland, will be layered onto Federated’s existing 34-state operating base, with relatively little overlap ( more ) -2between the companies’ locations As a result, Federated for the first time will have a truly national retail footprint, with stores in 64 of the nation’s top 65 markets Lundgren said that this transaction is expected to be accretive to Federated’s earnings per share in 2007 Federated expects to realize approximately $450 million in cost synergies by 2007, resulting from the consolidation of central functions, division integrations and the adoption of best practices across the combined company In addition, the company anticipates approximately $1 billion in one-time costs related to the acquisition and integration, spread out over a three-year period beginning in 2005 “In today’s retail environment, competition comes from every conceivable retail format To succeed, we have to operate more efficiently and compete more effectively against players at all levels of the retail demographic,” said John Dunham, May’s president and acting chairman and chief executive officer “There is no question that this is a bold and exciting move, and one I believe will have a positive impact on competitive retailing for American consumers in the longer term.” Federated said that while it intends to merge May’s St Louis corporate headquarters functions into its own Cincinnati and New York corporate offices, beginning this year, its intention is to make St Louis the headquarters of one of the major operating divisions going forward in order to take advantage of the considerable talent pool that exists there Federated also said it intends to honor May’s extensive philanthropic commitments to the communities in which it operates, and to continue that practice Brand Conversions  2005 EDGAR Online, Inc 11 While no division consolidations or store name changes are planned before 2006, Federated said it is likely that most of May’s regional department stores ultimately will be converted to Macy’s “We have had considerable success in re-branding our own regional stores as Macy’s, so obviously we anticipate continuing this strategy to some extent with our new stores,” Lundgren said “Operating regional stores primarily under one brand means we can advertise nationally, unlike regional retailers, which is more cost-effective It also means that cause-marketing programs such as Macy’s ‘Go Red for Women’ campaign, which benefits the American Heart Association, can be promoted nationally, making them more impactful for the causes they benefit.” Strong Benefits A mong the benefits to customers arising from the acquisition, Lundgren cited the capacity to lower costs through synergies; the ability to engage in national marketing initiatives; the potential to expand the private brand merchandise lines of both companies; a rollout of Federated’s successful reinvent initiatives to May’s department stores; and the ability to expand customer loyalty programs and offer bridal and gift registries to a national customer base “For the customers of both companies, joining together means we will be better able to offer value and an improved retail experience, from better assortments and merchandise selections to more competitive pricing and service,” Lundgren said “For shareholders and employees, joining together means we will be better able to meet competitive challenges in the retail marketplace and better able to realize growth opportunities over the longer term And for the communities we serve, joining these companies together means additional opportunities for cause-marketing promotions and expanded involvement in initiatives that facilitate our giving back in a meaningful way to the places our customers and employees live and work.” ( more ) -3Lundgren said the combination of these two companies is expected to lead to accelerated same-store sales growth “We expect the sales of the combined company to grow faster as a result of certain changes we would make, including introducing the best of Federated’s and May’s private brands into each other’s stores and rolling out our reinvent initiatives to May stores.” “It will take us until mid -2007 to implement all of the changes we would anticipate as a result of this acquisition, and we intend to take the time necessary to it right,” Lundgren said “Our first priority is to continue to execute in all of our stores this year, while we focus behind the scenes on consolidating corporate and support operations.” Federated was advised by and received a fairness opinion from Goldman, Sachs & Co In addition, Federated also received financial advice on certain matters pertaining to the merger from Credit Suisse First Boston LLC Jones, Day provided legal advice to Federated May was advised by Morgan Stanley Dean Witter, Inc and received a fairness opinion from Peter J Solomon Company, Limited Skadden Arps provided legal advice to May Stockholders are urged to read the joint proxy statement/prospectus regarding the proposed transaction when it becomes available, because it will contain important information Stockholders will be able to obtain a free copy of the joint proxy statement/prospectus, as well as other filings containing information about Federated and May, without charge, at the SEC’s Internet site (http://www.sec.gov) Copies of the joint proxy statement/prospectus and the filings with the SEC that will be incorporated by reference in the joint proxy statement/prospectus can also be obtained, without charge, by directing a request to Federated, West Seventh Street, Cincinnati, Ohio 45202, Attention: Office of the Secretary, or to May, 611 Olive Street, St Louis, Missouri, 63101, Attention: Office of the Secretary The respective directors and executive officers of Federated and May and other persons may be deemed to be participants in the solicitation of proxies in respect of the proposed transaction Information regarding Federated’s directors and executive officers is available in its proxy statement filed with the SEC by Federated on April 15, 2004, and information regarding May’s directors and executive officers is available in its proxy statement filed with the SEC by May on April 22, 2004 Other information regarding the participants in the proxy solicitation and a description of their direct and indirect interests, by security holdings or otherwise, will be contained the joint proxy statement/prospectus and other relevant materials to be filed with the SEC when they become available This press release contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 Such statements include, but are not limited to, statements about the benefits of the business combination transaction involving Federated and May, including future financial and operating results, the new company’s plans, objectives, expectations and intentions and other statements that are not historical facts Such statements are based upon the current beliefs and expectations of Federated’s and May’s management and are subject to significant risks and uncertainties Actual results may differ materially from those set forth in the forward-looking statements because of a variety of factors, including: the ability to obtain governmental approvals of the transaction on the proposed terms and schedule; the failure  2005 EDGAR Online, Inc 12 of Federated and May stockholders to approve the transaction; the risk that the businesses will not be integrated successfully; the risk that the cost savings and any other synergies from the transaction may not be fully realized or may take longer to realize than expected; disruption from the transaction making it more difficult to maintain relationships with customers, employees or suppliers; transaction costs associated with the renovation, conversion and ( more ) -4stores, manufacturers’ outlets, off-price and discount stores, and all other retail channels; and general consumer-spending levels, including the impact of the availability and level of consumer debt, and the effects of weather Additional factors that could cause Federated’s and May’s results to differ materially from those described in the forward-looking statements can be found in the 2003 Annual Reports on Forms 10-K of Federated and May filed with the SEC and available at the SEC’s Internet site ( http://www.sec.gov ) About Federated : 111,000 employees in 34 states Founded 1929, headquartered in Cincinnati, OH, with corporate offices in Cincinnati and New York Federated currently operates more than 450 stores in 34 states, Guam and Puerto Rico under the names of Macy’s, Bloomingdale’s, Bon-Macy’s, Burdines-Macy’s, Goldsmith’s-Macy’s, Lazarus-Macy’s and Rich’s-Macy’s The company also operates macys.com and Bloomingdale’s By Mail Federated is converting all regional department stores to Macy’s brand effective March 6, 2005 Annual sales: $15.6 billion About May : 132,000 employees in 46 states Founded 1910, headquartered in St Louis, MO At the end of the fiscal 2004, May operated 491 department stores under the names of Famous-Barr, Filene’s, Foley’s, Hecht’s, Kaufmann’s, Lord & Taylor, L.S Ayres, Marshall Field’s, Meier & Frank, Robinsons-May, Strawbridge’s, and The Jones Store, as well as 239 David’s Bridal stores, 449 After Hours Formalwear stores, and 11 Priscilla of Boston stores May currently operates in 46 states, the District of Columbia, and Puerto Rico Annual sales: $14.4 billion ### EDITOR’S NOTES: • • • There will be a live webcast of a call with investors and analysts beginning at 10 a.m ET today This call can be accessed through the Federated website, or by dialing in at 1-800-659-4363 to listen to the broadcast in real time Pre-registration is requested The webcast will be archived for replay beginning approximately two hours after the conclusion of the live call In addition, a press conference to discuss today’s announcement will be held beginning at 11 a.m at the Rihga Royal Hotel, 151 West 54 th Street, New York City Excerpts from that press conference will be taped and made available via satellite uplink later this afternoon A media advisory with instructions for accessing that satellite feed will be issued via Business Wire later today as well Additional information on Federated is available on the Internet at www.fds.com/pressroom and additional information on May is available at www.mayco.com End of Filing  2005 EDGAR Online, Inc 13 Filed by Federated Department Stores, Inc Commission File No 001-13536 Pursuant to Rule 425 under the Securities Act of 1933 and deemed filed pursuant to Rule 14a-12 under the Securities Exchange Act of 1934 Subject Company: The May Department Stores Company Commission File No 001-00079 Federated Department Stores, Inc March 15, 2005 Slide Presentation at Bank of America Conference FEDERATED UPDATE 2004 was a great year for Federated • • • • • Sales ahead of plan and compared favorably to competition EPS exceeded guidance Operating margin increased over last year Generated significant cash flow Utilized cash by buying back stock, paying higher dividend and repurchasing high cost debt Delivered these financial results while making progress on Four Priorities and positioning company for future UPDATE ON FOUR PRIORITIES Assortments • • Over a third of 2004 sales came from private brands and exclusive/limited distribution product Private brands represented 17.4% of sales in 2004 Increased our proportion of “Better/Best” goods in “Good/Better/Best” breakdown • Continued to increase inventory turnover Pricing Continued to reduce “value add” days overall — and reduced public days even more Increased usage of “value add” offers associated with proprietary card usage Modest increase in everyday value program Rolling out 20/20 program more broadly • • Focuses on-order on best sellers More timely markdowns Shopping Experience Significant improvement in customer response letter score Implemented 32 inch aisle width standard  2005 EDGAR Online, Inc 14 Reinvent initiatives now in 156 stores representing over 50% of Macy’s sales Testing new reinvent initiatives Marketing Roll out of national Macy’s advertising campaign Developed and executed new loyalty program Created brand strategy Names changed to Macy’s as of 3/6/05 MAY MERGER Transaction On February 28, Federated and May announced that we had entered into a merger agreement Each share of May will be converted into the right to receive $17.75 per share of cash and 3115 shares of Federated stock Equity value about $11b plus approximately $6b of debt for a total consideration of approximately $17b As part of transaction, we have committed to increasing our annual dividend to $1 per share Why are we so excited about combination? Creates $30b retailer which will be able to compete more effectively • • • • Increased scale and efficiencies allowing us to offer better value proposition to customers National footprint for Macy’s — little overlap Leverage of brand names and private brands Opportunity to share best practices As a result, we expect to accelerate comp store sales growth and improve the profitability of combined entity Financial Impact Expense Synergies: $175MM in 2006/$450MM in 2007 • • • Consolidation of Corporate/Support Functions Division integration Sharing of Best Practices Sales: Approximately 5% per year added growth starting in 2007 • May Stores: Private Brand, Reinvent, Four Priorities • All Stores: Ability to offer more value, Best Practices Expected disruption hurts sales in 05/06 Store dispositions: Too early to be specific One time Costs: $1 billion  2005 EDGAR Online, Inc 15 Accretive to EPS starting in 2007 Internal rate of return of cash flows above our Cost of Capital Credit ratios temporarily weakened but are restored quickly due to strong cash flow generation and potential asset sales (i.e credit, store locations) Financing needs will vary depending on asset sale decisions CONCLUSION Federated, with our continued progress on our Four Priorities, is ready to execute our strategy across much larger store base While it will be challenging, we are experienced at department store integrations and we will structure transition efforts in a way to minimize disruption to base business We look forward to providing periodic updates on our progress once the transaction has closed *** FORWARD-LOOKING STATEMENTS This document contains statements about expected future events and financial results that are forward-looking within the meaning of the Private Securities Litigation Reform Act of 1995 Such statements include, but are not limited to, statements about the benefits of the business combination transaction involving Federated and May, including future financial and operating results, the new company’s plans, objectives, expectations and intentions and other statements that are not historical facts Such statements are based upon the current beliefs and expectations of Federated and May’s management and are subject to significant risks and uncertainties Actual results could differ materially from those expressed in the forward-looking statements contained in this document because of a variety of factors, including: the failure of Federated and May stockholders to approve the transaction; a significant change in the timing of, or the imposition of any government conditions or legal impediments to, the closing of the proposed transaction; the risks that the businesses will not be integrated successfully; the extent and timing of the ability to obtain revenue enhancements, cost savings and other synergies following the proposed transaction; disruption from the transaction making it more difficult to maintain relationships with customers, employees or suppliers; transaction costs associated with the renovation and conversion of stores, manufacturer’s outlets, off-price and discount stores; general consumer spending levels, including the impact of the availability and level of consumer debt; and the effects of weather Additional factors that may affect the future results of Federated and May are set forth in their respective filings with the Securities and Exchange Commission (“SEC”), which are available at www.fds.com and www.maycompany.com, respectively ADDITIONAL INFORMATION AND WHERE TO FIND IT In connection with the proposed transaction, a registration statement, including a joint proxy statement/prospectus, and other materials will be filed with the SEC WE URGE INVESTORS TO READ THE REGISTRATION STATEMENT AND JOINT PROXY STATEMENT/PROSPECTUS AND THESE OTHER MATERIALS CAREFULLY WHEN THEY BECOME AVAILABLE BECAUSE THEY WILL CONTAIN IMPORTANT INFORMATION ABOUT THE PROPOSED TRANSACTION Investors will be able to obtain free copies of the registration statement and joint proxy statement/prospectus (when available) as well as other filed documents containing information about Federated and May at the SEC’s website (www.sec.gov) Free copies of Federated’s SEC filings are also available on Federated’s website at www.fds.com, or by request to Office of the Secretary, Federated Department Stores, Inc., West Seventh Street, Cincinnati, OH 45202 Free copies of May’s SEC filings are also available on May’s website at www.maycompany.com, or by request to Corporate Communications, The May Department Stores Company, 611 Olive Street, St Louis, MO 63101-1799 This communication shall not constitute an offer to sell or the solicitation of an offer to buy any securities, nor shall there be any sale of securities in any jurisdiction in which such offer, solicitation or sale would be unlawful prior to registration or qualification under the securities laws of any such jurisdiction PARTICIPANTS IN THE SOLICITATION Federated, May and their respective officers and directors and other persons may be deemed, under SEC rules, to be participants in the solicitation of proxies from Federated or May’s stockholders with respect to the proposed transaction Information regarding the officers and directors of Federated is available in its proxy statement filed by Federated with the SEC on April 15, 2004 Information regarding the officers and directors of May is available in its proxy statement filed by May with the SEC on April 22, 2004 More detailed information regarding the identity of potential participants and their direct and indirect interests in the solicitation, by security holdings or otherwise, will be set forth in the registration statement and joint proxy statement/prospectus and other materials to be filed with the SEC in connection with the proposed transaction End of Filing  2005 EDGAR Online, Inc 16