FEDERATED DEPARTMENT STORES, INC. 424B3
Filed Pursuant To Rule 424(b)(3)
Registration No. 333-123667
TO THE STOCKHOLDERS OF
FEDERATED DEPARTMENT STORES, INC. AND
THE MAY DEPARTMENT STORES COMPANY
Federated Department Stores, Inc., which is referred to as
Federated, and The May Department Stores Company, which is
referred to as May, have entered into an agreement and plan of
merger whereby Federated will acquire May. In the merger, May
stockholders will receive 0.3115 shares of Federated common
stock and $17.75 in cash for each share of May common stock they
own. Upon completion of the merger, we estimate that Mays
former stockholders will own approximately 97 million, or
approximately 36%, of the then-outstanding shares of Federated
common stock. Federateds stockholders will continue to own
their existing shares, which will not be affected by the merger.
Shares of Federated common stock are listed on the New York
Stock Exchange under the symbol FD. Upon completion
of the merger, May common stock, which is listed on the New York
Stock Exchange under the symbol MAY, will be
delisted.
We are each holding our annual meeting of stockholders in order
to obtain those approvals necessary to consummate the merger and
to approve certain other matters as described in this joint
proxy statement/ prospectus. Information about these meetings,
the merger and other business to be considered by Federated and
May stockholders is contained in this joint proxy statement/
prospectus. We urge you to read this joint proxy statement/
prospectus, and the documents incorporated by reference into
this joint proxy statement/ prospectus, carefully and in their
entirety, in particular, see Risk Factors beginning
on page 22.
We are very excited about the opportunities the proposed merger
brings to both May and Federated stockholders, and we thank you
for your consideration and continued support.
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Terry J. Lundgren
Chairman, President and
Chief Executive Officer
Federated Department Stores, Inc. |
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John L. Dunham
Chairman, President and
Chief Executive Officer
The May Department Stores Company |
Neither the Securities and Exchange Commission nor any state
securities commission has approved or disapproved of these
securities or passed upon the adequacy or accuracy of this joint
proxy statement/ prospectus. Any representation to the contrary
is a criminal offense.
This joint proxy statement/ prospectus is dated May 31,
2005,
and is first being mailed to May and Federated stockholders on
or about May 31, 2005.
REFERENCES TO ADDITIONAL INFORMATION
Except where we indicate otherwise, as used in this joint proxy
statement/ prospectus, Federated refers to Federated
and its consolidated subsidiaries and May refers to
May and its consolidated subsidiaries. This joint proxy
statement/ prospectus incorporates important business and
financial information about Federated and May from documents
that each company has filed with the Securities and Exchange
Commission, referred to as the SEC, but that have not been
included in or delivered with this joint proxy statement/
prospectus. This joint proxy statement/ prospectus incorporates
the annual report on Form 10-K of Federated for the fiscal
year ended January 29, 2005, and the annual report on
Form 10-K/A of May for the fiscal year ended
January 29, 2005. If you are a May stockholder, the May
annual report is delivered with this joint proxy statement/
prospectus. If you are a Federated stockholder, the Federated
annual report is delivered with this joint proxy statement/
prospectus. For a list of documents incorporated by reference
into this joint proxy statement/ prospectus and how you may
obtain them, see Where You Can Find More Information
beginning on page 185.
This information is available to you without charge upon your
written or oral request. You can obtain the documents
incorporated by reference into this joint proxy statement/
prospectus by accessing the SECs website maintained at
www.sec.gov.
In addition, Federateds SEC filings are available to the
public on Federateds website,
www.fds.com/corporategovernance, and Mays filings with the
SEC are available to the public on Mays website,
www.mayco.com. Information contained on Federateds
website, Mays website or the website of any other person
is not incorporated by reference into this joint proxy
statement/ prospectus, and you should not consider information
contained on those websites as part of this joint proxy
statement/ prospectus.
Federated will provide you with copies of this information
relating to Federated, without charge, if you request them in
writing or by telephone from:
Federated Department Stores, Inc.
7 West Seventh Street
Cincinnati, Ohio 45202
Attention: Investor Relations
(513) 579-7780
May will provide you with copies of this information relating to
May, without charge, if you request them in writing or by
telephone from:
The May Department Stores Company
611 Olive Street
St. Louis, Missouri 63101
Attention: Investor Relations
(314) 342-6300
If you would like to request documents, please do so by
July 6, 2005, in order to receive them before the annual
meetings.
Federated has supplied all information contained in or
incorporated by reference in this joint proxy statement/
prospectus relating to Federated, and May has supplied all
information contained in or incorporated by reference in this
joint proxy statement/ prospectus relating to May.
THE MAY DEPARTMENT STORES COMPANY
611 Olive Street
St. Louis, Missouri 63101
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON JULY 13, 2005
To our fellow Stockholders and Holders of ESOP preference shares
of
The May Department Stores Company:
We will hold our 2005 annual meeting of stockholders at
10:00 a.m., Eastern Daylight Savings Time, on July 13,
2005, at The Pierre-New York, 2 East 61st Street, New York, New
York 10021, unless postponed or adjourned to a later date. The
May annual meeting will be held for the following purposes:
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1. To approve and adopt the Agreement and Plan of Merger,
dated as of February 27, 2005, by and among May, Federated
Department Stores, Inc. and Milan Acquisition LLC, a wholly
owned subsidiary of Federated, and the transactions contemplated
by the merger agreement, including the merger, pursuant to which
May will merge with Milan Acquisition LLC, on the terms and
subject to the conditions contained in the merger agreement, and
each outstanding share of May common stock would be converted
into the right to receive $17.75 in cash and 0.3115 shares
of Federated common stock. A copy of the merger agreement is
attached as Annex A to the accompanying joint proxy
statement/ prospectus; |
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2. To elect four members of Mays board of directors; |
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3. To adopt an amendment to Mays amended and restated
certificate of incorporation to provide for the annual election
of directors; |
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4. To ratify the appointment of Deloitte & Touche
LLP as Mays independent registered public accounting firm
for the fiscal year ending January 28, 2006; |
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5. To approve adjournments or postponements of the May
annual meeting, if necessary, to permit further solicitation of
proxies if there are not sufficient votes at the time of the May
annual meeting to approve the above proposals; and |
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6. To consider and take action upon any other business that
may properly come before the May annual meeting or any
reconvened meeting following an adjournment or postponement of
the May annual meeting. |
These items of business are described in the accompanying joint
proxy statement/ prospectus. Only stockholders of record at the
close of business on May 20, 2005, are entitled to notice
of the May annual meeting and to vote at the May annual meeting
and any adjournments or postponements of the May annual meeting.
Mays board of directors approved the merger agreement
and the transactions contemplated by the merger agreement,
including the merger, on February 27, 2005, and determined
that the transactions contemplated by the merger agreement are
advisable and fair to, and in the best interests of, May and its
stockholders. Mays board of directors recommends that you
vote FOR the adoption of the merger agreement and the
transactions contemplated by the merger agreement, including the
merger.
Mays board of directors also recommends that you
vote FOR the other May annual meeting proposals, all of
which are described in detail in the accompanying joint proxy
statement/ prospectus. Approval of the other May annual meeting
proposals is not a condition to the merger.
Under Delaware law, appraisal rights will be available to May
stockholders of record who vote against approval and adoption of
the merger agreement. To exercise your appraisal rights, you
must strictly follow the procedures prescribed by Delaware law.
These procedures are summarized in the accompanying joint proxy
statement/ prospectus.
Your vote is very important. Whether or not you plan to
attend the May annual meeting in person, please complete, sign
and date the enclosed proxy card(s) or voting instruction
card(s) as soon as possible and return it in the postage-prepaid
envelope provided, or vote your shares by telephone or over the
Internet as described in the accompanying joint proxy statement/
prospectus. Completing a proxy now will not prevent you from
being able to vote at the annual meeting by attending in person
and casting a vote. However, if you do not return or submit
the proxy or vote in person at the annual meeting, the effect
will be the same as a vote against the proposal to approve and
adopt the merger agreement and the transactions contemplated by
the merger agreement, including the merger.
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By order of the board of directors, |
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Richard A. Brickson |
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Secretary and Senior Counsel |
Please vote your shares promptly. You can find instructions
for voting on the enclosed proxy card or voting instruction
card.
If you have questions, contact:
The May Department Stores Company
611 Olive Street
St. Louis, Missouri 63101
Attention: Investor Relations
(314) 342-6300
St. Louis, Missouri, May 31, 2005
Your vote is important. Please complete, date, sign and
return your proxy card(s) or voting instruction card(s), or, if
available, vote your shares by telephone or over the Internet at
your earliest convenience so that your shares are represented at
the meeting.
FEDERATED DEPARTMENT STORES, INC.
7 West Seventh Street
Cincinnati, Ohio 45202
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON JULY 13, 2005
To our fellow Stockholders of Federated Department Stores, Inc.:
The annual meeting of stockholders of Federated Department
Stores, Inc. (Federated) will be held at
11:00 a.m., Eastern Daylight Savings Time, on July 13,
2005, at Federateds corporate offices located at
7 West Seventh Street, Cincinnati, Ohio 45202, unless
postponed or adjourned to a later date. The Federated annual
meeting will be held for the following purposes:
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1. To authorize the issuance of Federated common stock
pursuant to the terms of the Agreement and Plan of Merger, dated
as of February 27, 2005, by and among The May Department
Stores Company, Federated and Milan Acquisition LLC, a wholly
owned subsidiary of Federated, pursuant to which May will merge
with Milan Acquisition LLC on the terms and subject to the
conditions contained in the merger agreement. A copy of the
merger agreement is attached as Annex A to the
accompanying joint proxy statement/ prospectus; |
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2. To elect three Class II members of Federateds
board of directors; |
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3. To adopt an amendment to Federateds certificate of
incorporation to provide for the annual election of directors; |
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4. To ratify the appointment of KPMG LLP as
Federateds independent registered public accounting firm
for the fiscal year ending January 28, 2006; |
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5. To approve adjournments or postponements of the
Federated annual meeting, if necessary, to permit further
solicitation of proxies if there are not sufficient votes at the
time of the Federated annual meeting to approve the above
proposals; and |
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6. To consider and take action upon any other business that
may properly come before the Federated annual meeting or any
reconvened meeting following an adjournment or postponement of
the Federated annual meeting. |
These items of business are described in the accompanying joint
proxy statement/ prospectus. Only stockholders of record at the
close of business on May 20, 2005, are entitled to notice
of the Federated annual meeting and to vote at the Federated
annual meeting and any adjournments or postponements of the
Federated annual meeting.
Federateds board of directors approved the merger
agreement and the transactions contemplated by the merger
agreement, including the merger, on February 27, 2005, and
determined that the transactions contemplated by the merger
agreement are advisable and fair to, and in the best interests
of, Federated and its stockholders. Federateds board of
directors recommends that you vote FOR the issuance of
Federated common stock pursuant to the merger agreement.
Federateds board of directors also recommends that you
vote FOR the other Federated annual meeting proposals, all
of which are described in detail in the accompanying joint proxy
statement/ prospectus. Approval of the other Federated annual
meeting proposals is not a condition to the merger.
Your vote is very important. Whether or not you plan to
attend the Federated annual meeting in person, please complete,
sign and date the enclosed proxy card(s) or voting instruction
card(s) as soon as possible and return it in the postage-prepaid
envelope provided, or vote your shares by telephone or over the
Internet as described in the accompanying joint proxy statement/
prospectus. Completing a proxy now will not prevent you from
being able to vote at the annual meeting by attending in person
and casting a vote. However, if you
do not return or submit the proxy or vote in person at the
annual meeting you could negatively effect the outcome of the
proposal to approve the issuance of Federated common stock in
the merger.
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By order of the board of directors, |
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Dennis J. Broderick |
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Senior Vice President, General Counsel and Secretary |
Please vote your shares promptly. You can find instructions
for voting on the enclosed proxy card or voting instruction
card.
If you have questions, contact:
Federated Department Stores, Inc.
7 West Seventh Street
Cincinnati, Ohio 45202
Attention: Investor Relations
(513) 579-7780
Call Toll-Free: (800) 261-5385
Cincinnati, Ohio, May 31, 2005
Your vote is important. Please complete, date, sign and
return your proxy card(s) or voting instruction card(s) or, if
available, vote your shares by telephone or over the Internet at
your earliest convenience so that your shares are represented at
the meeting.
TABLE OF CONTENTS
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iv
QUESTIONS AND ANSWERS ABOUT THE ANNUAL MEETINGS AND THE
MERGER
The following questions and answers briefly address some
commonly asked questions about the annual meetings and the
merger. They may not include all the information that is
important to you. Federated and May urge you to read carefully
this entire joint proxy statement/ prospectus, including the
annexes and the other documents to which we have referred you.
We have included page references in certain parts of this
summary to direct you to a more detailed description of each
topic presented elsewhere in this joint proxy statement/
prospectus.
The Merger
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Q: |
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Why am I receiving this joint proxy statement/ prospectus? |
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A: |
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May and Federated have agreed to the acquisition of May by
Federated under the terms of a merger agreement that is
described in this joint proxy statement/ prospectus. A copy of
the merger agreement is attached to this joint proxy statement/
prospectus as Annex A. |
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In order to complete the merger, Federated stockholders must
vote to approve the issuance of shares of Federated common stock
in the merger and May stockholders must approve and adopt the
merger agreement and the transactions contemplated by the merger
agreement, including the merger. May and Federated will hold
separate meetings of their respective stockholders to obtain
these approvals, as well as to consider various other proposals
unrelated to the transaction. |
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This joint proxy statement/ prospectus contains important
information about the merger, the merger agreement and the
annual meetings of the respective stockholders of May and
Federated, which you should read carefully. The enclosed voting
materials allow you to vote your shares without attending your
respective companys annual meeting. |
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Your vote is very important. We encourage you to vote as soon as
possible. |
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Q: |
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What is the proposed transaction for which I am being asked
to vote? |
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May stockholders are being asked to approve and adopt the merger
agreement and the transactions contemplated by the merger
agreement, including the merger. The approval of this proposal
by May stockholders is a condition to the effectiveness of the
merger. See The Merger Agreement Conditions to
Completion of the Merger beginning on page 111. |
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Federated stockholders are being asked to authorize the issuance
of Federated common stock pursuant to the terms of the merger
agreement at the Federated annual meeting. The approval of this
proposal by the Federated stockholders is a condition to the
effectiveness of the merger. See The Merger
Agreement Conditions to Completion of the
Merger beginning on page 111. |
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What are the positions of the May and Federated boards of
directors regarding the merger? |
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A: |
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Both boards of directors have approved the merger agreement and
the transactions contemplated by the merger agreement, including
the merger, and determined that the transactions contemplated by
the merger agreement are advisable and fair to, and in the best
interests of, their respective company and stockholders. The May
board of directors recommends that the May stockholders
vote FOR the proposal to adopt the merger agreement and the
transactions contemplated by the merger agreement, including the
merger, at the May annual meeting. The Federated board of
directors recommends that the Federated stockholders
vote FOR the proposal to authorize the issuance of
Federated common stock pursuant to the terms of the merger
agreement at the Federated annual meeting. See The
Merger Federateds Reasons for the Merger and
Recommendation of Federateds Board of Directors
beginning on page 55 and The Merger
Mays Reasons for the Merger and Recommendation of
Mays Board of Directors beginning on page 51. |
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Q: |
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What vote is needed by May stockholders to approve and adopt
the merger agreement and the transactions contemplated by the
merger agreement, including the merger, at the May annual
meeting? |
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The approval and adoption of the merger agreement and the
transactions contemplated by the merger agreement, including the
merger, requires the approval of a majority of the outstanding
shares of May common stock and May Employee Stock Ownership Plan
preference stock, which are referred to as ESOP preference
shares, entitled to vote, voting together as one class. If a May
stockholder does not vote, it will have the same effect as a
vote against the approval and adoption of the merger agreement
and the transactions contemplated by the merger agreement,
including the merger. See The May Annual
Meeting Quorum and Voting Rights beginning on
page 29. |
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What vote is needed by Federated stockholders to authorize
the issuance of Federated common stock pursuant to the terms of
the merger agreement at the Federated annual meeting? |
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A: |
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The authorization of the issuance of Federated common stock
pursuant to the terms of the merger agreement requires the
affirmative vote of at least a majority of the votes cast by the
holders of outstanding shares of Federated common stock present
(in person or by proxy) at the Federated annual meeting, where
the holders of at least a majority of all outstanding shares of
Federated common stock vote on the proposal. If a Federated
stockholder does not vote, it will not have the same effect as a
vote against the merger agreement. However, it can negatively
affect the vote on such proposal if their failure to be counted
results in less than a majority in interest of all outstanding
shares of Federated common stock being voted on such proposal.
See The Federated Annual Meeting Quorum and
Voting Rights beginning on page 37. |
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Q: |
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Where does Federated common stock trade? |
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A: |
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Shares of Federated common stock trade on the New York Stock
Exchange under the symbol FD. |
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Q: |
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When do you expect to complete the merger? |
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A: |
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If the merger agreement and the transactions contemplated by the
merger agreement, including the merger, are approved and adopted
at the May annual meeting and the issuance of Federated common
stock is authorized at the Federated annual meeting, we expect
to complete the merger as soon as possible after the
satisfaction of the other conditions to the merger. There may be
a substantial period of time between the approval of the
proposals by stockholders at the annual meetings of Mays
and Federateds stockholders and the effectiveness of the
merger. We currently anticipate that the merger will be
completed in the third quarter of 2005. See The Merger
Agreement The Merger; Closing on page 96. |
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Q: |
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Should I send in my stock certificates now? |
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A: |
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No. If the merger is completed, Federated will send May
stockholders written instructions for sending in their stock
certificates. See The May Annual Meeting Proxy
Solicitations on page 35 and The Merger
Agreement Exchange of Shares on page 99.
Federated stockholders will not need to send in their stock
certificates. |
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Q: |
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Who can answer my questions about the merger? |
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A: |
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If you have any questions about the merger or your annual
meeting, need assistance in voting your shares, or need
additional copies of this joint proxy statement/ prospectus or
the enclosed proxy card(s) or voting instructions, you should
contact: |
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Federated Department Stores, Inc. |
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7 West Seventh Street |
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Cincinnati, Ohio 45202 |
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Attention: Investor Relations |
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Telephone: (513) 579-7780 |
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or |
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The May Department Stores Company |
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611 Olive Street |
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St. Louis, Missouri 63101 |
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Attention: Investor Relations |
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Telephone: (314) 342-6300 |
Other Federated Annual Meeting Proposals
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Q: |
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On what other proposals am I being asked to vote at the
Federated annual meeting? |
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A: |
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At Federateds annual meeting, in addition to voting upon
the issuance of Federated stock pursuant to the merger
agreement, Federated stockholders will be asked: |
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To elect three Class II members of
Federateds board of directors; |
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To adopt an amendment to Federateds
Certificate of Incorporation to provide for the annual election
of directors; |
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To ratify the appointment of KPMG LLP as
Federateds independent registered public accounting firm
for the fiscal year ending January 28, 2006; |
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To approve adjournments or postponements of the
Federated annual meeting, if necessary, to permit further
solicitation of proxies if there are not sufficient votes at the
time of the Federated annual meeting to approve the above
proposals; and |
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To consider and take action upon any other business
that may properly come before the Federated annual meeting (or
any reconvened meeting) following an adjournment or postponement
of the Federated annual meeting. |
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See The Federated Annual Meeting Purposes of
the Federated Annual Meeting beginning on page 36. |
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Q: |
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What vote is necessary to approve the other proposals at the
Federated annual meeting? |
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A: |
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The election of three Class II members of Federateds
board of directors requires the affirmative vote of a plurality
of the shares of Federated common stock present in person or
represented by proxy at the Federated annual meeting and
entitled to vote. |
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The proposal to amend Federateds certificate of
incorporation to adopt a system for the annual election of all
Federated directors requires the affirmative vote of a majority
of all outstanding shares of Federated common stock to take
effect in accordance with the schedule more fully described in
the proposal. |
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The ratification of the appointment of KPMG LLP as
Federateds independent registered public accounting firm
for the fiscal year ending January 28, 2006, requires the
affirmative vote of the holders of a majority of Federated
common stock present in person or represented by proxy entitled
to vote and actually voted at the Federated annual meeting. |
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A proposal to approve adjournments or postponements of the
Federated annual meeting, if necessary, to permit further
solicitation of proxies if there are not sufficient votes at the
time of the Federated annual meeting to approve the above
proposals requires the affirmative vote of the holders of a
majority of Federated common stock present in person or
represented by proxy entitled to vote and actually voted at the
Federated annual meeting. |
Other May Annual Meeting Proposals
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Q: |
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On what other proposals am I being asked to vote at the May
annual meeting? |
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A: |
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At Mays annual meeting, in addition to voting upon the
approval and adoption of the merger agreement and the
transactions contemplated by the merger agreement, including the
merger. May stockholders will be asked: |
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To elect four members of Mays board of
directors; |
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To adopt an amendment to Mays amended and
restated certificate of incorporation to provide for the annual
election of directors; |
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To ratify the appointment of Deloitte &
Touche LLP as Mays independent registered public
accounting firm for the fiscal year ending January 28, 2006; |
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To approve adjournments or postponements of the May
annual meeting, if necessary, to permit further solicitation of
proxies if there are not sufficient votes at the time of the May
annual meeting to approve the above proposals; and |
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To consider and take action upon any other business
that may properly come before the May annual meeting (or any
reconvened meeting) following an adjournment or postponement of
the May annual meeting. |
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See The May Annual Meeting Purposes of the May
Annual Meeting on page 29. |
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Q: |
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What vote is necessary to approve the other proposals at the
May annual meeting? |
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A: |
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The election of the four members of Mays board of
directors requires the affirmative vote of a plurality of the
shares of May common stock and ESOP preference shares, voting
together as one class, present in person or represented by proxy
at the May annual meeting and entitled to vote. |
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The proposal to amend Mays amended and restated
certificate of incorporation requires the affirmative vote of a
majority of the outstanding shares of May common stock and ESOP
preference shares, voting together as one class. |
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Ratification of the appointment of Deloitte & Touche
LLP as Mays independent registered public accounting firm
for the fiscal year ending January 28, 2006, requires the
affirmative vote of the holders of a majority of the shares of
May common stock and ESOP preference shares, voting together as
one class, present in person or represented by proxy and
entitled to vote at the May annual meeting. |
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A proposal to approve adjournments or postponements of the May
annual meeting, if necessary, to permit further solicitation of
proxies if there are not sufficient votes at the time of the May
annual meeting to approve the above proposals requires the
affirmative vote of a majority of the shares of May common stock
and ESOP preference shares, voting together as one class,
present in person or represented by proxy and entitled to vote
at the May annual meeting. |
Procedures
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Q: |
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When and where are the annual meetings? |
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A: |
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The May annual meeting will be held at The Pierre-New York,
2 East 61st Street, New York, New York 10021, on July 13,
2005. |
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The Federated annual meeting will be held at Federateds
corporate offices, 7 West Seventh Street, Cincinnati, Ohio
45202, on July 13, 2005. |
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Q: |
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What should I do now? |
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A: |
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You should read this joint proxy statement/ prospectus
carefully, including the annexes, and return your completed,
signed and dated proxy card(s) or voting instruction card(s) by
mail in the enclosed postage-paid envelope or, if available, by
submitting your proxy by telephone or over the Internet as soon
as possible so that your shares will be represented and voted at
your annual meeting. |
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Q: |
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If I am going to attend my annual meeting, should I return my
proxy card(s) or voting instruction card(s)? |
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A: |
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Yes. Returning your signed and dated proxy card(s) or voting
instruction card(s) or voting by telephone or over the Internet,
if available, ensures that your shares will be represented and
voted at your annual meeting. See Summary
Voting; Proxies beginning on page 9, The May
Annual Meeting How to Vote on page 34 and
The Federated Annual Meeting How to Vote
beginning on page 42. |
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Q: |
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What does it mean if I receive multiple proxy cards? |
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A: |
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Your shares may be registered in more than one account, such as
brokerage accounts and 401(k) accounts. It is important that you
complete, sign, date and return each proxy card or voting
instruction card you receive, or, if available, vote using the
telephone or the Internet as described in the instructions
included with your proxy card(s) or voting instruction card(s). |
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Q: |
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Where can I find more information about Federated and May? |
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A: |
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You can find more information about Federated and May from
various sources described under Where You Can Find More
Information beginning on page 185. |
5
SUMMARY
This summary of the material information contained in this
joint proxy statement/ prospectus may not include all the
information that is important to you. To understand fully the
proposed merger, and for a more detailed description of the
terms and conditions of the merger and certain other matters
being considered at your annual meeting, you should read this
entire joint proxy statement/ prospectus and the documents to
which we have referred you. See Where You Can Find More
Information beginning on page 185. We have included
page references parenthetically in this summary to direct you to
a more detailed description of each topic presented in this
summary.
Information about Federated (beginning on page 117)
Federated, a Delaware corporation, through its subsidiaries,
operates 394 department stores and 65 furniture galleries and
specialty stores. In addition, through its subsidiaries,
Federated conducts direct-to-customer mail catalog and
electronic commerce businesses. The stores are located in
34 states, Puerto Rico and Guam. Federated is headquartered
in New York, New York and Cincinnati, Ohio and employs
approximately 112,000 full-time and part-time employees.
Federated Department Stores, Inc.
7 West Seventh Street
Cincinnati, Ohio 45202
Attention: Investor Relations
Telephone: (513) 579-7780
Information about May (beginning on page 144)
May, a Delaware corporation, through its subsidiaries, operates
seven regional department store divisions nationwide under 12
trade names and a bridal group that includes some of the most
recognized names in the wedding industry. At January 29,
2005, May operated 491 department stores in 39 states and
the District of Columbia, 239 Davids Bridal Stores in
45 states and Puerto Rico, 449 After Hours Formalwear
stores in 31 states and 11 Priscilla of Boston stores in
nine states. May is headquartered in St. Louis, Missouri
and employs approximately 132,000 full-time and part-time
employees.
The May Department Stores Company
611 Olive Street
St. Louis, Missouri 63101
Attention: Investor Relations
Telephone: (314) 342-6300
The Merger (beginning on page 44)
On February 27, 2005, the boards of directors of May and
Federated each approved the merger of May with a newly formed
and wholly owned subsidiary of Federated, which is referred to
as Merger Sub, upon the terms and subject to the conditions
contained in the merger agreement. The surviving company of the
merger will become a wholly owned subsidiary of Federated.
May and Federated both believe that the merger will provide
substantial strategic and financial benefits to the stockholders
of both companies by creating one of the largest retail chains
in the United States. In addition, May is also proposing the
merger to provide its stockholders with the opportunity to
receive a premium for their shares (0.42% over the closing price
of May common stock on February 25, 2005, the last full
trading day before the announcement of the merger, and 27.5%
over the closing price of May common stock on January 14,
2005, the last full trading day before reports in the press
regarding a potential transaction between May and Federated),
and to offer May stockholders the opportunity to participate in
the growth and opportunities of the combined companies by
receiving Federated common stock in the merger. To review the
reasons for the merger in greater detail, see The
Merger Federateds Reasons for the Merger and
6
Recommendation of Federateds Board of Directors
beginning on page 55 and The Merger
Mays Reasons for the Merger and Recommendation of
Mays Board of Directors beginning on page 51.
We encourage you to read the merger agreement, which governs the
merger and is attached as Annex A to this joint
proxy statement/ prospectus, because it sets forth the terms of
the merger of May with Merger Sub.
Holders of May common stock (other than May, Federated and
dissenting May stockholders who properly exercise their
appraisal rights) will be entitled to receive for each share of
May common stock:
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$17.75 in cash, without interest; and |
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0.3115 fully paid, nonassessable shares of Federated common
stock. |
As a result, Federated will issue approximately 97 million
shares of Federated common stock and approximately
$5.5 billion in cash in the merger based upon the number of
shares of May common stock outstanding on the record date of the
May annual meeting and assuming full conversion of the ESOP
preference shares as of such date. We refer to the stock and
cash consideration to be paid to May stockholders by Federated
as the merger consideration.
The total value of the merger consideration that a May
stockholder receives in the merger may vary. The value of the
cash portion of the merger consideration is fixed at $17.75 for
each share of May common stock. The value of the stock portion
of the merger consideration is not fixed and will depend upon
the value of 0.3115 shares of Federated common stock. This
value may be ascertained by multiplying the trading price of
Federated common stock by 0.3115.
If the total value of the Federated common stock to be received
in the merger falls below 40% of the total consideration paid on
the closing date, the merger may be taxable for federal income
tax purposes. In that event, Federated may elect to pay more in
Federated common stock to maintain the nontaxable status of the
merger or, if Federated does not so elect, May may elect to
increase the cash consideration received in the merger for each
share of May common stock to $18.75. Under the merger agreement,
there are no other circumstances in which the exchange ratio or
the cash consideration increases. Federated and May will issue a
joint press release if either the exchange ratio or the cash
consideration increases. See Risk Factors If
the total value of the Federated common stock to be received
falls below 40% of the total consideration, May stockholders
could be required to accept $18.75 per share in cash and 0.3115
shares of Federated common stock in a transaction that is
currently taxable to such May stockholders beginning on
page 24.
Federated will fund the cash portion of the merger consideration
from cash on hand, cash from operations, borrowings under
existing or new credit facilities, the issuance of long-term
debt or other securities or a combination of the foregoing.
Federated may also sell a portion of its or Mays credit
card related assets and proceeds from such a transaction may be
used to fund the cash portion, or to repay debt incurred to fund
the cash portion, of the merger consideration.
In general, upon completion of the merger, options to purchase
shares of May common stock granted by May to its employees will
be assumed by Federated and converted into options to purchase
shares of Federated common stock. Federated has agreed to assume
each of Mays stock option plans at the effective time of
the merger. Each unvested May stock option outstanding under any
May stock option plan will become fully vested and exercisable
in connection with the merger, as described herein.
Restricted shares of May common stock granted by May to its
employees and directors will become fully vested in connection
with the merger and the holders of those shares will be entitled
to receive the merger consideration with respect to those shares
upon completion of the merger.
7
For a full description of the treatment of May equity awards,
see The Merger Interests of May Directors and
Executive Officers in the Merger Equity-Based
Awards beginning on page 84.
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May ESOP Preference Shares |
In connection with the merger and in accordance with the terms
and conditions of the May ESOP preference shares, each issued
and outstanding May ESOP preference share will be converted
immediately prior to the effectiveness of the merger into shares
of May common stock, and such shares of May common stock will be
converted into the merger consideration upon completion of the
merger, as described herein.
Opinions of our Financial Advisors (beginning on page 57
for May and 75 for Federated)
Opinions of Mays Financial Advisors. In deciding to
approve the merger agreement, the May board of directors
considered the opinion of Mays financial advisor, Morgan
Stanley & Co. Incorporated, which is referred to as
Morgan Stanley. The May board of directors received a written
opinion from Morgan Stanley to the effect that, as of
February 27, 2005, and based upon and subject to the
various considerations, assumptions and limitations described in
its opinion, the merger consideration to be received by holders
of shares of May common stock pursuant to the merger agreement
was fair, from a financial point of view, to such holders. The
full text of Morgan Stanleys written opinion is attached
to this joint proxy statement/ prospectus as
Annex B. May encourages you to read this opinion
carefully in its entirety for a description of the procedures
followed, assumptions made, matters considered and limitations
on the review undertaken. Morgan Stanleys opinion is
addressed to the May board of directors and is one of many
factors considered by the May board of directors in deciding to
approve the merger. Morgan Stanleys opinion does not
constitute a recommendation to any stockholder as to how such
stockholder should vote or whether such stockholders should take
any other action relating to the transaction. For its services,
Morgan Stanley will be entitled to receive a transaction fee,
the principal portion of which is payable upon the completion of
the transaction.
In deciding to approve the merger agreement, the May board of
directors also considered the opinion of Mays financial
advisor, Peter J. Solomon Company, L.P., which is referred to as
Peter J. Solomon Company or PJSC. The May board of directors
received a written opinion from Peter J. Solomon Company to the
effect that, as of February 27, 2005, and based upon and
subject to the various assumptions made, matters considered and
limitations described in its opinion, the consideration proposed
to be received by holders of May common stock in connection with
the merger was fair from a financial point of view to such
holders. The full text of Peter J. Solomon Companys
written opinion is attached to this joint proxy statement/
prospectus as Annex C. May encourages you to read
this opinion carefully in its entirety for a description of the
procedures followed, assumptions made, matters considered and
limitations on the review undertaken. Peter J. Solomon
Companys opinion is addressed to the May board of
directors and is one of many factors considered by the May board
of directors in deciding to approve the merger. Peter J. Solomon
Companys opinion does not constitute a recommendation to
any stockholder as to how such stockholder should vote or act on
any matter relating to the merger. Under the terms of its
engagement with May, Peter J. Solomon Company received a
customary fee for its financial advisory services in connection
with the merger, all of which was payable upon the delivery of
Peter J. Solomon Companys opinion.
Opinion of Federateds Financial Advisor. Goldman,
Sachs & Co., which is referred to as Goldman Sachs,
acted as financial advisor to Federated in connection with the
transaction. Goldman Sachs delivered an oral opinion to
Federateds board of directors, subsequently confirmed in
writing, to the effect that, as of February 27, 2005, and
based upon and subject to the factors and assumptions set forth
in the opinion, the $17.75 in cash and 0.3115 shares of
Federated common stock to be paid by Federated for each
outstanding share of May common stock pursuant to the merger
agreement was fair, from a financial point of view, to
Federated. The full text of the written opinion of Goldman
Sachs, dated February 27, 2005, which sets forth the
assumptions made, procedures followed, matters considered, and
limitations on the review undertaken in connection with the
opinion, is attached as Annex D to this joint proxy
statement/ prospectus. Goldman Sachs provided its opinion for
the information and assistance of Federateds board of
directors in connection with its consideration of the merger.
Goldman Sachs opinion is not a recommendation as to how
any holder of Federated common stock should vote with respect to
the merger. For its services, Goldman Sachs will be
8
entitled to receive a transaction fee, the principal portion of
which is payable upon the completion of the transaction.
Record Date; Outstanding Shares; Shares Entitled to Vote
(beginning on page 29 for May and 37 for Federated)
Federated Stockholders. The record date for the meeting
for Federated stockholders was May 20, 2005. This means
that you must have been a stockholder of record of
Federateds common stock at the close of business on
May 20, 2005, in order to vote at the annual meeting. You
are entitled to one vote for each share of common stock you own.
On Federateds record date, 170,112,496 shares of
common stock were outstanding. This number excludes shares held
in the treasury of Federated or by subsidiaries of Federated,
which carry no votes.
May Stockholders. The record date for the meeting for May
stockholders was May 20, 2005. This means that you must
have been a stockholder of record of Mays common stock or
of Mays ESOP preference shares at the close of business on
May 20, 2005, in order to vote at the annual meeting. You
are entitled to one vote for each share of common stock you own.
On Mays record date, Mays voting securities carried
311,993,938 votes, which consisted of 299,443,318 shares of
common stock (excluding 21,012,176 shares of treasury
stock) and 371,457 ESOP preference shares, which carry
12,550,620 votes.
Voting; Proxies (beginning on page 32 for May and 41 for
Federated)
You may vote your shares by signing, dating and mailing the
enclosed proxy card(s) or voting instruction card(s), or, if
available, by voting by telephone or over the Internet. A number
of banks and brokerage firms participate in a program that also
permits stockholders whose shares are held in street
name to direct their vote by the Internet or telephone.
This option, if available, will be reflected in the voting
instructions from the bank or brokerage firm that accompany this
joint proxy statement/ prospectus. If your shares are held in an
account at a bank or brokerage firm that participates in such a
program, you may direct the vote of these shares by the Internet
or telephone by following the voting instructions enclosed with
the proxy form from the bank or brokerage firm.
If you participate in Mays profit sharing plan, you will
receive a voting instruction card for the May common stock and
ESOP preference shares allocated to your accounts in that plan.
Under the terms of the plan, the plan trustee must receive your
voting instructions by 11:59 p.m., Eastern Daylight Savings
Time on July 8, 2005.
If you participate in Federateds Profit Sharing 401(k)
Investment Plan, you will receive a voting instruction card for
your proportional interest in any Federated shares in that plan.
Under the terms of the plan, the plan trustee must receive your
voting instructions by 5:00 p.m., Eastern Daylight Savings
Time on July 11, 2005.
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How Proxies Will Be Voted |
If you complete, sign and date your proxy card(s) or voting
instruction card(s), or, if available, vote by telephone or the
Internet, your proxy will be voted in accordance with your
instructions. If you sign and date your proxy card(s) or voting
instruction card(s) but do not indicate how you want to vote at
your annual meeting, your proxy will be voted FOR each of the
proposals presented at your annual meeting.
If you are a record holder of May common stock, May ESOP
preference shares or Federated common stock, you can change your
vote by:
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sending a written notice to the corporate secretary of the
company in which you hold shares that is received prior to your
annual meeting and states that you revoke your proxy; |
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signing and delivering a new proxy card(s) or voting instruction
card(s) bearing a later date; |
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if available, voting again by telephone or over the Internet and
submitting your proxy so that it is received prior to your
annual meeting; or |
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attending your annual meeting and voting in person, although
your attendance alone will not revoke your proxy. |
If your shares are held in a street name account,
you must contact your broker, bank or other nominee to change
your vote.
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Voting Shares Held in Street Name |
If a broker, bank or other nominee holds your common stock for
your benefit but not in your own name, your shares are in
street name. In that case, your broker, bank or
other nominee will send you a voting instruction form to use in
voting your shares. The availability of Internet and telephone
voting depends on the voting procedures of your broker, bank or
other nominee. Please follow the instructions on the voting
instruction form they send you. If your shares are held in
street name and you wish to vote in person at your annual
meeting, you must contact your broker, bank or other nominee and
request a document called a legal proxy. You must
bring this legal proxy to your respective annual meeting in
order to vote in person.
Generally, a broker, bank or other nominee may only vote the
common stock that it holds in street name for you in accordance
with your instructions. However, if your broker, bank or other
nominee has not received your instructions, your broker, bank or
other nominee has the discretion to vote on certain matters that
are considered routine. A broker non-vote occurs if
your broker, bank or other nominee cannot vote on a particular
matter because your broker, bank or other nominee has not
received instructions from you and because the proposal is not
routine. See The May Annual Meeting Voting;
Proxies Voting Shares Held in Street Name
beginning on page 33 and The Federated Annual
Meeting Voting; Proxies Voting Shares
Held in Street Name beginning on page 41.
Depending upon the nature of the proposal, abstentions will
either not be counted and therefore have no effect on the
proposal or will have the same effect as a vote against the
proposal. See The May Annual Meeting Voting;
Proxies Abstaining from Voting on page 34
and The Federated Annual Meeting Voting;
Proxies Abstaining from Voting on page 42.
Stock Ownership of Directors and Executive Officers
(beginning on page 144 for Federated and
170 for May)
May. At the close of business on the record date for the
May annual meeting, directors and executive officers of May and
their affiliates beneficially owned and were entitled to vote
approximately 1,067,940 shares of May common stock,
collectively representing less than 1% of the shares of May
common stock outstanding on that date.
Federated. At the close of business on the record date
for the Federated annual meeting, directors and executive
officers of Federated and their affiliates beneficially owned
and were entitled to vote approximately 422,587 shares of
Federated common stock, collectively representing less than 1%
of the shares of Federated common stock outstanding on that date.
Ownership of Federated After the Merger
Based on the number of shares of Federated and May common stock
outstanding on their respective record dates, after completion
of the merger, Federated expects to issue approximately
97 million shares of Federated common stock and former May
stockholders will own approximately 36% of the then-outstanding
shares of Federated common stock.
10
Interests of May Directors and Executive Officers in the
Merger (beginning on page 83)
When considering the recommendation of its board of directors
with respect to the merger agreement and the transactions
contemplated by the merger agreement, including the merger, May
stockholders should be aware that some directors and executive
officers of May have interests in the transactions contemplated
by the merger agreement that are different from, or in addition
to, their interests as stockholders and the interests of May
stockholders generally. The May board of directors was aware of
these interests during its deliberations on the merits of the
merger and in deciding to recommend that you vote for the
approval and adoption of the merger agreement and the
transactions contemplated by the merger agreement, including the
merger, at the May annual meeting. For a more detailed
discussion of these interests, see Risk
Factors Certain directors and executive officers of
May have interests and arrangements that are different from, or
in addition to, May stockholders beginning on page 22
and The Merger Interests of May Directors and
Executive Officers in the Merger beginning on page 83.
Federated Board of Directors After the Merger (beginning on
page 83)
The members of the Federated board of directors who are in
office immediately prior to the merger are expected to remain as
members of the Federated board of directors after the completion
of the merger. Federated will also select two individuals who
were directors of May as of the date of the merger agreement and
who are recommended by the Nominating and Corporate Governance
Committee of Federateds board of directors, and, if those
individuals are willing to serve, Federated shall use its
reasonable best efforts to appoint those individuals, at the
effective time of the merger, to the Federated board of
directors.
Listing of Federated Common Stock and Delisting of May Common
Stock
Application will be made to have the shares of Federated common
stock issued in the merger approved for listing on the NYSE,
where Federated common stock currently is traded under the
symbol FD. If the merger is completed, May common
stock will no longer be listed on the NYSE and will be
deregistered under the Securities Exchange Act of 1934, as
amended, which is referred to as the Exchange Act, and May will
no longer file periodic reports with the SEC.
Appraisal Rights (beginning on page 88)
Federated. Under Delaware law, holders of Federated
common stock are not entitled to appraisal rights in connection
with the issuance of Federated common stock in the merger or in
connection with any other proposal to be voted on at the
Federated annual meeting.
May. Holders of May common stock who do not wish to
accept the consideration payable pursuant to the merger may
seek, under Section 262 of the DGCL, judicial appraisal of
the fair value of their shares by the Delaware Court of
Chancery. This value could be more than, less than or the same
as the merger consideration for the May common stock. Failure to
strictly comply with all the procedures required by
Section 262 of the DGCL will result in a loss of the right
to appraisal.
Merely voting against the merger will not preserve the right of
May stockholders to appraisal under Delaware law. Also, because
a submitted proxy not marked against or
abstain will be voted for the proposal
to approve and adopt the merger agreement and the transactions
contemplated by the merger agreement, including the merger, the
submission of a proxy not marked against or
abstain will result in the waiver of appraisal
rights. May stockholders who hold shares in the name of a broker
or other nominee must instruct their nominee to take the steps
necessary to enable them to demand appraisal for their shares.
Holders of May common stock are not entitled to appraisal rights
in connection with any other proposals to be voted on at the May
annual meeting.
Annex E to this joint proxy statement/ prospectus
contains the full text of Section 262 of the DGCL, which
relates to the rights of appraisal. We encourage you to read
these provisions carefully and in their entirety.
11
Conditions to Completion of the Merger (beginning on
page 111)
Completion of the merger depends on a number of conditions being
satisfied or waived. See The Merger Agreement
Conditions to Completion of the Merger beginning on
page 111.
The completion of the merger is subject to compliance with the
HSR Act. The notifications required under the HSR Act to the
U.S. Federal Trade Commission, or the FTC, and the
Antitrust Division of the U.S. Department of Justice, or
the Antitrust Division, were filed on March 8, 2005. On
April 7, 2005, Federated and May received from the FTC
requests for additional information with respect to the proposed
merger. As a result of the requests for additional information,
the waiting period under United States federal antitrust law
will be extended until 11:59 P.M. Eastern Daylight Savings
Time on the 30th day after both Federated and May have
substantially complied with the requests for additional
information or such later time as is agreed among the parties
and the FTC, unless the waiting period is earlier terminated
because the FTC determines to close its review. In addition,
Federated and May have agreed to provide the same information
they are providing to the FTC to State Attorneys General that
request, and agree to maintain the confidentiality of, such
information.
Federated and May have agreed to use their reasonable best
efforts to take, or cause to be taken, all actions necessary,
proper or advisable under applicable law and regulations,
including the HSR Act, to complete the merger as promptly as
practicable, but in no event later than October 3, 2005,
which date may be extended to August 31, 2006, in
circumstances described below, in The Merger
Agreement Termination of the Merger Agreement
beginning on page 113. We refer to this October 3,
2005 date, as it may be extended, as the outside date.
Among other things, Federated and its subsidiaries have agreed
to take any and all actions necessary to ensure that:
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|
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|
|
no requirement for non-action, a waiver, consent or approval of
the FTC, the Antitrust Division, any State Attorney General or
other governmental entity; |
|
|
|
no decree, judgment, injunction, temporary restraining order or
any other order in any suit or proceeding; and |
|
|
|
no other matter relating to any antitrust or competition law or
regulation, |
would preclude completion of the merger by the outside date
under the merger agreement, provided that in no event shall
Federated be required to dispose of, or hold separate, assets of
May, Federated or their respective subsidiaries which, in the
aggregate, accounted for annual net sales for the most recently
completed fiscal year exceeding $4 billion.
Termination of the Merger Agreement and Termination Fees
(beginning on page 113)
Before the effective time of the merger, the merger agreement
may be terminated by the mutual written consent of Federated and
May, or by either Federated or May under certain specified
circumstances, including uncured material breaches of the merger
agreement. Upon the termination of the merger agreement under
certain circumstances, May or Federated may be required to pay a
termination fee of up to $350 million to the other party.
See The Merger Agreement Termination of the
Merger Agreement beginning on page 113 and The
Merger Agreement Termination Fees beginning on
page 114.
No Solicitation by May (beginning on page 104)
The merger agreement restricts the ability of May to solicit or
engage in discussions or negotiations with a third party
regarding a proposal to acquire a significant interest in May.
However, if May receives an acquisition proposal from a third
party that Mays board of directors determines in good
faith (after consultation with its outside counsel and its
financial advisor) constitutes a superior proposal or would
reasonably be expected to lead to a superior proposal, May may
furnish nonpublic information to that third
12
party and engage in negotiations regarding an acquisition
proposal with that third party, subject to specified conditions.
Material United States Federal Income Tax Consequences
(beginning on page 92)
Federated and May intend that the merger, as currently
contemplated, qualify as a reorganization within the meaning of
Section 368(a) of the Internal Revenue Code.
Assuming that the merger is completed as currently contemplated,
we expect that the May stockholders will not recognize
gain or loss in respect of the stock portion of the merger
consideration, except for gain or loss resulting from the
receipt of cash in lieu of a fractional share of Federated
common stock. In addition, we expect that the May stockholders
generally will recognize capital gain, but not loss, in
an amount equal to the lesser of (i) the cash they receive
in the merger (excluding cash in lieu of a fractional share of
Federated common stock) and (ii) the excess of the sum of
the fair market value of the Federated common stock and cash
they receive (again excluding cash received in lieu of a
fractional share of Federated common stock) over their adjusted
tax basis in their May common stock.
If the merger is taxable under the circumstances described in
The Merger Merger
Consideration beginning on page 7, each May
stockholder generally will recognize capital gain or loss equal
to the difference, if any, between the amount by which the sum
of the amount of cash received and the fair market value of the
shares of Federated common stock received as of the effective
time of the merger exceeds the stockholders adjusted tax
basis in the stockholders shares of May common stock.
We anticipate that the merger will have no material
U.S. federal income tax consequences to Federated
stockholders.
Tax matters are very complicated. You should be aware that the
tax consequences to you of the merger may depend upon your own
situation. In addition, you may be subject to state, local or
foreign tax laws that are not discussed in this joint proxy
statement/ prospectus. You should therefore consult with your
own tax advisor for a full understanding of the tax consequences
to you of the merger.
Accounting Treatment
The merger will be accounted for as a business combination using
the purchase method of accounting. Federated will be
the acquirer for financial accounting purposes.
Risks
In evaluating the merger, the merger agreement or the issuance
of shares of Federated common stock in the merger, you should
carefully read this joint proxy statement/ prospectus and
especially consider the factors discussed in the section
entitled Risk Factors beginning on page 22.
Litigation Related to the Merger
As of the date of this joint proxy statement/ prospectus, May
and Federated are aware of one purported class action lawsuit
that has been filed against May and its board of directors in
connection with the merger. Among other things, the complaint in
the lawsuit requests an order to prevent the closing of the
merger. May believes that the lawsuit is without merit and
intends to contest it vigorously. See The
Merger Certain Events on page 92.
13
Transition Leadership Team
In connection with the merger, Federated and May have
established a Transition Leadership Team, effective
April 1, 2005, to plan for the integration of Federated and
May. The team is comprised of the following individuals from
both Federated and May:
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Federated |
|
May |
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Tom Cole, Vice Chair
|
|
John Dunham, Chairman, President and Chief Executive Officer |
Dennis Broderick, Senior Vice President, General Counsel and
Secretary |
|
Alan Charlson, Senior Vice President and General Counsel |
David Clark, Senior Vice President, Human Resources |
|
John Danahy, Chairman, May Merchandising Company and May
Department Stores International |
Jim Gray, President and Chief Operating Officer, Macys East |
|
Tom Fingleton, Executive Vice President and Chief Financial
Officer |
Karen Hoguet, Senior Vice President and Chief Financial Officer |
|
Brian Keck, Senior Vice President, Human Resources |
Len Marcus, President and Chief Operating Officer, Macys
Merchandising Group |
|
|
Peter Sachse, President and Chief Marketing Officer, Macys
Corporate Marketing |
|
|
Comparison of Rights of Stockholders (beginning on
page 177)
As a result of the merger, the holders of May common stock will
become holders of Federated common stock. Following the merger,
May stockholders will have different rights as stockholders of
Federated than as stockholders of May due to differences between
the certificates of incorporation and by-laws of Federated and
May. Federated stockholders will retain their shares of
Federated common stock and their rights will continue to be
governed by Federateds certificate of incorporation and
by-laws. For a copy of Federateds or Mays
certificate of incorporation or by-laws, see Where You Can
Find More Information beginning on page 185.
14
FINANCIAL SUMMARY
Federated Market Price Data and Dividends
Federated common stock is traded on the New York Stock Exchange
under the symbol FD. The following table shows for
the periods indicated the high and low sales prices for
Federated common stock as reported on the New York Stock
Exchange.
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|
Price Range of | |
|
|
Common Stock | |
|
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| |
Fiscal Year Ended |
|
High | |
|
Low | |
|
|
| |
|
| |
February 1, 2003:
|
|
|
|
|
|
|
|
|
|
First Quarter
|
|
$ |
44.26 |
|
|
$ |
36.83 |
|
|
Second Quarter
|
|
|
44.10 |
|
|
|
31.39 |
|
|
Third Quarter
|
|
|
38.13 |
|
|
|
23.59 |
|
|
Fourth Quarter
|
|
|
34.75 |
|
|
|
25.50 |
|
January 31, 2004:
|
|
|
|
|
|
|
|
|
|
First Quarter
|
|
|
30.91 |
|
|
|
23.51 |
|
|
Second Quarter
|
|
|
40.90 |
|
|
|
29.93 |
|
|
Third Quarter
|
|
|
47.93 |
|
|
|
38.50 |
|
|
Fourth Quarter
|
|
|
50.60 |
|
|
|
42.54 |
|
January 29, 2005:
|
|
|
|
|
|
|
|
|
|
First Quarter
|
|
|
55.06 |
|
|
|
46.95 |
|
|
Second Quarter
|
|
|
51.07 |
|
|
|
44.07 |
|
|
Third Quarter
|
|
|
51.10 |
|
|
|
42.80 |
|
|
Fourth Quarter
|
|
|
59.40 |
|
|
|
49.33 |
|
January 28, 2006:
|
|
|
|
|
|
|
|
|
|
First Quarter
|
|
|
65.08 |
|
|
|
54.90 |
|
|
Second Quarter (through May 20, 2005)
|
|
|
69.05 |
|
|
|
57.69 |
|
The last reported sales prices of Federated common stock on the
New York Stock Exchange on February 25, 2005, and
May 20, 2005, were $56.79 and $68.86, respectively.
February 25, 2005, was the last full trading day prior to
the public announcement of the merger. May 20, 2005, was
the most recent practicable date prior to the mailing of this
joint proxy statement/prospectus to Federateds and
Mays stockholders.
The Federated board of directors has the power to determine the
amount and frequency of the payment of dividends. Decisions
regarding whether or not to pay dividends and the amount of any
dividends are based on compliance with the DGCL, compliance with
agreements governing Federateds indebtedness, earnings,
cash requirements, results of operations, cash flows, financial
condition and other factors that the board of directors
considers important. Federated initiated a quarterly dividend of
$0.125 per share in the second quarter of 2003, and
increased that dividend to $0.135 per share in the second
quarter of 2004. Under the merger agreement, Federated is
permitted to issue a quarterly dividend not to exceed
$0.14 per share during the period before the effective date
of the merger. In addition, Federated has agreed to increase its
quarterly dividend to $0.25 per share, beginning with the
first quarterly dividend with a record date on or after the
effective date of the merger. While Federated intends to
maintain dividends at this level for the foreseeable future, it
cannot assure that it will continue to pay dividends at this
level, or at all.
15
May Market Price Data and Dividends
May common stock is traded on the New York Stock Exchange under
the symbol MAY. The following table shows for the
periods indicated the high and low sales prices for May common
stock on the New York Stock Exchange.
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|
|
|
|
|
|
|
|
|
Price Range of | |
|
|
Common Stock | |
|
|
| |
Fiscal Year Ended |
|
High | |
|
Low | |
|
|
| |
|
| |
February 1, 2003:
|
|
|
|
|
|
|
|
|
|
First Quarter
|
|
$ |
37.75 |
|
|
$ |
33.04 |
|
|
Second Quarter
|
|
|
37.08 |
|
|
|
25.74 |
|
|
Third Quarter
|
|
|
30.50 |
|
|
|
20.10 |
|
|
Fourth Quarter
|
|
|
26.10 |
|
|
|
20.08 |
|
January 31, 2004:
|
|
|
|
|
|
|
|
|
|
First Quarter
|
|
|
21.72 |
|
|
|
17.81 |
|
|
Second Quarter
|
|
|
25.34 |
|
|
|
20.02 |
|
|
Third Quarter
|
|
|
28.20 |
|
|
|
23.70 |
|
|
Fourth Quarter
|
|
|
34.06 |
|
|
|
26.37 |
|
January 29, 2005:
|
|
|
|
|
|
|
|
|
|
First Quarter
|
|
|
36.48 |
|
|
|
29.84 |
|
|
Second Quarter
|
|
|
30.80 |
|
|
|
24.62 |
|
|
Third Quarter
|
|
|
26.79 |
|
|
|
23.04 |
|
|
Fourth Quarter
|
|
|
36.45 |
|
|
|
25.63 |
|
January 28, 2006:
|
|
|
|
|
|
|
|
|
|
First Quarter
|
|
|
37.46 |
|
|
|
30.55 |
|
|
Second Quarter (through May 20, 2005)
|
|
|
38.66 |
|
|
|
35.15 |
|
The last reported sales prices of May common stock on the New
York Stock Exchange on February 25, 2005, and May 20,
2005, were $35.35 and $38.50, respectively. February 25,
2005, was the last full trading day prior to the public
announcement of the merger. May 20, 2005, was the most
recent practicable date prior to the mailing of this joint proxy
statement/prospectus to Federateds and Mays
stockholders.
The May board of directors has the power to determine the amount
and frequency of the payment of dividends. Decisions regarding
whether or not to pay dividends and the amount of any dividends
are based on compliance with the DGCL, compliance with
agreements governing Mays indebtedness, earnings, cash
requirements, results of operations, cash flows, financial
condition and other factors that the board of directors
considers important. May paid an annual dividend of
$0.97 per share in 2004. Under the merger agreement, May is
permitted to issue a quarterly dividend not to exceed
$0.245 per share during the period before the effective
date of the merger. May has consistently paid dividends over the
past five years, with dividends increasing one cent per share in
each of the last four years. While May anticipates that if the
merger were not consummated it would continue to pay dividends
at the current level, it cannot assure that it would continue to
pay dividends at this level, or at all.
16
Selected Historical Financial Data of Federated
The following table shows selected historical financial data for
Federated. The data as of and for each of the five years ended
January 29, 2005, were derived from Federateds
audited consolidated financial statements.
Detailed historical financial information is included in the
audited consolidated balance sheets as of January 29, 2005,
and January 31, 2004, and the related consolidated
statements of operations, shareholders equity and cash
flows for each of the years in the three-year period ended
January 29, 2005 included in Federateds Annual Report
on Form 10-K for the fiscal year ended January 29,
2005, filed on March 28, 2005. You should read the
following selected financial data together with Federateds
historical consolidated financial statements, including the
related notes, and the other information contained or
incorporated by reference in this joint proxy statement/
prospectus. See Where You Can Find More Information
beginning on page 185.
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|
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|
|
|
|
|
|
|
Year Ended, | |
|
|
| |
|
|
January 29, | |
|
January 31, | |
|
February 1, | |
|
February 2, | |
|
February 3, | |
|
|
2005 | |
|
2004 | |
|
2003 | |
|
2002 | |
|
2001 | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
(In millions, except per share data) | |
Consolidated Statement of Operations Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Sales
|
|
$ |
15,630 |
|
|
$ |
15,264 |
|
|
$ |
15,435 |
|
|
$ |
15,651 |
|
|
$ |
16,638 |
|
|
Cost of sales
|
|
|
9,297 |
|
|
|
9,099 |
|
|
|
9,255 |
|
|
|
9,584 |
|
|
|
9,955 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross margin
|
|
|
6,333 |
|
|
|
6,165 |
|
|
|
6,180 |
|
|
|
6,067 |
|
|
|
6,683 |
|
|
Selling, general and administrative expenses
|
|
|
4,933 |
|
|
|
4,824 |
|
|
|
4,837 |
|
|
|
4,801 |
|
|
|
4,912 |
|
|
Asset impairment and restructuring charges
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
162 |
|
|
|
80 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
|
1,400 |
|
|
|
1,341 |
|
|
|
1,343 |
|
|
|
1,104 |
|
|
|
1,691 |
|
|
Interest expense
|
|
|
(299 |
) |
|
|
(266 |
) |
|
|
(311 |
) |
|
|
(347 |
) |
|
|
(327 |
) |
|
Interest income
|
|
|
15 |
|
|
|
9 |
|
|
|
16 |
|
|
|
7 |
|
|
|
6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations before income taxes
|
|
|
1,116 |
|
|
|
1,084 |
|
|
|
1,048 |
|
|
|
764 |
|
|
|
1,370 |
|
|
Federal, state and local income tax expense
|
|
|
(427 |
) |
|
|
(391 |
) |
|
|
(410 |
) |
|
|
(256 |
) |
|
|
(549 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations
|
|
|
689 |
|
|
|
693 |
|
|
|
638 |
|
|
|
508 |
|
|
|
821 |
|
|
Discontinued operations
|
|
|
|
|
|
|
|
|
|
|
180 |
|
|
|
(784 |
) |
|
|
(1,005 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$ |
689 |
|
|
$ |
693 |
|
|
$ |
818 |
|
|
$ |
(276 |
) |
|
$ |
(184 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings (loss) per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations
|
|
$ |
3.93 |
|
|
$ |
3.76 |
|
|
$ |
3.23 |
|
|
$ |
2.60 |
|
|
$ |
4.01 |
|
|
Net income (loss)
|
|
|
3.93 |
|
|
|
3.76 |
|
|
|
4.15 |
|
|
|
(1.41 |
) |
|
|
(.90 |
) |
Diluted earnings (loss) per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations
|
|
$ |
3.86 |
|
|
$ |
3.71 |
|
|
$ |
3.21 |
|
|
$ |
2.54 |
|
|
$ |
3.97 |
|
|
Net income (loss)
|
|
|
3.86 |
|
|
|
3.71 |
|
|
|
4.12 |
|
|
|
(1.38 |
) |
|
|
(.89 |
) |
Average number of diluted shares outstanding
|
|
|
174.5 |
|
|
|
183.8 |
|
|
|
196.6 |
|
|
|
195.1 |
|
|
|
204.3 |
|
Cash dividends paid per share
|
|
$ |
.53 |
|
|
$ |
.375 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
Depreciation and amortization
|
|
$ |
737 |
|
|
$ |
710 |
|
|
$ |
680 |
|
|
$ |
689 |
|
|
$ |
651 |
|
Capital expenditures
|
|
$ |
548 |
|
|
$ |
568 |
|
|
$ |
627 |
|
|
$ |
651 |
|
|
$ |
786 |
|
Balance Sheet Data (at year end):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$ |
868 |
|
|
$ |
925 |
|
|
$ |
716 |
|
|
$ |
636 |
|
|
$ |
222 |
|
|
Total assets
|
|
|
14,885 |
|
|
|
14,550 |
|
|
|
14,441 |
|
|
|
16,112 |
|
|
|
17,012 |
|
|
Short-term debt
|
|
|
1,242 |
|
|
|
908 |
|
|
|
946 |
|
|
|
1,012 |
|
|
|
1,117 |
|
|
Long-term debt
|
|
|
2,637 |
|
|
|
3,151 |
|
|
|
3,408 |
|
|
|
3,859 |
|
|
|
3,845 |
|
|
Shareholders equity
|
|
|
6,167 |
|
|
|
5,940 |
|
|
|
5,762 |
|
|
|
5,564 |
|
|
|
5,822 |
|
17
Selected Historical Financial Data of May
The following table shows selected historical financial data for
May. The data as of and for each of the five years ended
January 29, 2005, were derived from Mays audited
consolidated financial statements.
Detailed historical financial information is included in the
audited consolidated balance sheets as of January 29, 2005,
and January 31, 2004, and the related consolidated
statements of operations, shareholders equity and cash
flows for each of the years in the three-year period ended
January 29, 2005 included in Mays Annual Report on
Form 10-K/A for the fiscal year ended January 29,
2005, filed on May 10, 2005. You should read the following
selected financial data together with Mays historical
consolidated financial statements, including the related notes,
and the other information contained or incorporated by reference
in this joint proxy statement/ prospectus. See Where You
Can Find More Information beginning on page 185.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended, | |
|
|
| |
|
|
January 29, | |
|
January 31, | |
|
February 1, | |
|
February 2, | |
|
February 3, | |
|
|
2005 | |
|
2004 | |
|
2003 | |
|
2002 | |
|
2001 | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
|
|
(In millions, except per share data) | |
|
|
Statement of Operations Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales
|
|
$ |
14,441 |
|
|
$ |
13,343 |
|
|
$ |
13,491 |
|
|
$ |
13,883 |
|
|
$ |
14,210 |
|
|
Net Earnings
|
|
|
524 |
|
|
|
434 |
|
|
|
542 |
|
|
|
703 |
|
|
|
858 |
|
Balance Sheet Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$ |
15,163 |
|
|
$ |
12,122 |
|
|
$ |
12,030 |
|
|
$ |
11,964 |
|
|
$ |
11,574 |
|
|
Long-term debt and preference stock
|
|
|
5,873 |
|
|
|
4,032 |
|
|
|
4,300 |
|
|
|
4,689 |
|
|
|
4,833 |
|
|
Shareowners equity
|
|
|
4,475 |
|
|
|
4,191 |
|
|
|
4,035 |
|
|
|
3,841 |
|
|
|
3,855 |
|
Other Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings per share diluted:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings per share diluted
|
|
$ |
1.70 |
|
|
$ |
1.41 |
|
|
$ |
1.76 |
|
|
$ |
2.21 |
|
|
$ |
2.62 |
|
Dividends per common share
|
|
$ |
.97 |
|
|
$ |
.96 |
|
|
$ |
.95 |
|
|
$ |
.94 |
|
|
$ |
.93 |
|
18
Selected Unaudited Pro Forma Financial Data of Federated
The following selected unaudited pro forma financial data of
Federated give effect to the merger as if the merger had been
completed as of February 1, 2004, with respect to the pro
forma results of operations data, and as of January 29,
2005, with respect to the pro forma balance sheet data.
The following selected unaudited pro forma financial data should
be read in conjunction with the historical consolidated
financial statements and notes thereto of Federated and May,
which are incorporated by reference in this joint proxy
statement/ prospectus, and the other information contained or
incorporated by reference in this joint proxy statement/
prospectus. See Where You Can Find More Information
beginning on page 185.
The following selected unaudited pro forma financial data
reflect adjustments, which are based upon preliminary estimates,
to allocate the purchase price to Mays net assets. The
purchase price allocation reflected herein is preliminary, and
final allocation of the purchase price will be based upon the
actual purchase price and the actual assets and liabilities of
May as of the date of the completion of the merger. Accordingly,
the actual purchase accounting adjustments may differ from the
pro forma adjustments reflected herein.
The following selected unaudited pro forma financial data are
presented for illustrative purposes only and are not necessarily
indicative of what Federateds actual financial position or
results of operations would have been had the merger been
completed on the dates indicated above. The following selected
unaudited pro forma financial data do not give effect to
(1) Federateds or Mays results of operations or
other transactions or developments since January 29, 2005,
(2) the synergies, cost savings and one-time charges
expected to result from the merger, or (3) the effects of
transactions or developments, including sales of stores or other
assets, which may occur subsequent to the merger. In addition,
the following selected unaudited pro forma financial data assume
the absence of any adjustment to the purchase price provided for
in the merger agreement. The foregoing matters, and the possible
sale by Federated of its or Mays credit card related
assets and use of the proceeds from such a transaction to fund
the cash portion, or to repay debt incurred to fund the cash
portion, of the purchase price payable in the merger, could
cause both Federateds pro forma historical financial
position and results of operations, and Federateds actual
future financial position and results of operations, to differ
materially from those presented in the following selected
unaudited pro forma financial data. See Risk
Factors The unaudited pro forma financial data
included in this joint proxy statement/ prospectus are
preliminary and Federateds actual financial position and
results of operations may differ materially from the unaudited
pro forma financial data included in this joint proxy statement/
prospectus beginning on page 23.
|
|
|
|
|
|
|
Year Ended | |
|
|
January 29, 2005 | |
|
|
| |
|
|
(In millions, | |
|
|
except per share | |
|
|
data) | |
Results of Operations Data:
|
|
|
|
|
Net sales
|
|
$ |
31,064 |
|
Net income
|
|
|
1,018 |
|
Diluted earnings per share
|
|
|
3.66 |
|
|
|
|
|
|
|
|
|
At | |
|
|
January 29, | |
|
|
2005 | |
|
|
| |
|
|
(In millions) | |
Balance Sheet Data:
|
|
|
|
|
Total assets
|
|
$ |
37,181 |
|
Short-term debt
|
|
|
3,520 |
|
Long-term debt
|
|
|
12,289 |
|
|
|
|
|
|
Total debt
|
|
|
15,809 |
|
Total shareholders equity
|
|
|
12,151 |
|
19
COMPARATIVE PER SHARE INFORMATION
The following table presents income from continuing operations,
cash dividends declared and book value per common share data
separately for Federated and May on a historical basis, on an
unaudited pro forma combined basis per Federated common share
and on an unaudited pro forma combined basis per May equivalent
common share. The following unaudited pro forma data give effect
to the merger as if the merger had been completed as of
February 1, 2004, with respect to the pro forma income from
continuing operations per common share data, and as of
January 29, 2005, with respect to the pro forma book value
per common share data. The following selected unaudited pro
forma financial data should be read in conjunction with the
historical consolidated financial statements and notes thereto
of Federated and May, which are incorporated by reference in
this joint proxy statement/ prospectus, and the other
information contained or incorporated by reference in this joint
proxy statement/ prospectus. See Where You Can Find More
Information beginning on page 185.
The unaudited pro forma combined data per Federated common share
are (1) based upon the historical weighted average number
of Federated common shares outstanding, adjusted to include the
estimated number of Federated common shares to be issued in the
merger, and (2) in the case of cash dividends paid per
common share, reflect Federateds agreement to increase its
quarterly dividend to $0.25 per share following the merger. See
Pro Forma Financial Data beginning on page 169.
We have based the unaudited pro forma combined data per May
equivalent common share on the unaudited pro forma combined per
Federated common share amounts, multiplied by the exchange ratio
of 0.3115.
The following unaudited pro forma data reflect adjustments,
which are based upon preliminary estimates, to allocate the
purchase price to Mays net assets. The purchase price
allocation reflected herein is preliminary, and final allocation
of the purchase price will be based upon the actual purchase
price and the actual assets and liabilities of May as of the
date of the completion of the merger. Accordingly, the actual
purchase accounting adjustments may differ from the pro forma
adjustments reflected herein.
The following unaudited pro forma data are presented for
illustrative purposes only and are not necessarily indicative of
what Federateds actual financial position or results of
operations would have been had the merger been completed on the
dates indicated above. The following unaudited pro forma data do
not give effect to (1) Federateds or Mays
results of operations or other transactions or developments
since January 29, 2005, (2) the synergies, cost
savings and one-time charges expected to result from the merger,
or (3) the effects of transactions or developments,
including sales of stores or other assets, which may occur
subsequent to the merger. In addition, the following unaudited
pro forma data assume the absence of any adjustment to the
purchase price provided for in the merger agreement. The
foregoing matters, and the possible sale by Federated of its or
Mays credit card related assets and use of the proceeds
from such a transaction to fund the cash portion, or to repay
debt incurred to fund the cash portion, of the purchase price
payable in the merger, could cause both Federateds pro
forma historical financial position and results of operations,
and Federateds actual future financial position and
results of operations, to differ materially from those presented
in the following selected unaudited pro forma financial data.
See Risk Factors The unaudited pro forma
financial data included in this joint proxy statement/
prospectus are preliminary and Federateds actual financial
position and results of operations may differ materially from
the unaudited pro forma financial data included in this joint
proxy statement/ prospectus beginning on page 23.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pro Forma Combined | |
|
|
Federated | |
|
|
|
Pro Forma Combined | |
|
Data per May | |
|
|
Historical per | |
|
May Historical | |
|
Data per Federated | |
|
Equivalent | |
|
|
Share Data | |
|
per Share Data | |
|
Common Share | |
|
Common Share | |
|
|
| |
|
| |
|
| |
|
| |
At or for the Year Ended January 29, 2005:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations per common share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$ |
3.93 |
|
|
$ |
1.74 |
|
|
$ |
3.74 |
|
|
$ |
1.17 |
|
|
Diluted
|
|
|
3.86 |
|
|
|
1.70 |
|
|
|
3.66 |
|
|
|
1.14 |
|
Cash dividends declared per common share
|
|
|
.53 |
|
|
|
.97 |
|
|
|
1.00 |
|
|
|
.31 |
|
Book value per common share
|
|
|
36.89 |
|
|
|
15.27 |
|
|
|
45.89 |
|
|
|
14.29 |
|
20
COMPARATIVE MARKET VALUE INFORMATION
The following table presents:
|
|
|
|
|
the closing prices per share and aggregate market value of
Federated common stock and May common stock, in each case based
on closing prices for those shares on the New York Stock
Exchange, on February 25, 2005, the last trading day prior
to the public announcement of the proposed merger, and
May 20, 2005, the last trading day for which this
information could be calculated prior to the date of this joint
proxy statement/ prospectus; and |
|
|
|
the equivalent price per share and equivalent market value of
shares of May common stock, based on the exchange ratio of
0.3115 and the closing price for Federated common stock on the
New York Stock Exchange on May 20, 2005. |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Federated | |
|
May | |
|
May | |
|
|
Historical | |
|
Historical | |
|
Equivalent(1) | |
|
|
| |
|
| |
|
| |
February 25, 2005
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Closing price per common share
|
|
$ |
56.79 |
|
|
$ |
35.35 |
|
|
$ |
35.44 |
|
|
Market value of common shares (in billions)(2)
|
|
$ |
9.52 |
|
|
$ |
10.88 |
|
|
|
|
|
May 20, 2005
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Closing price per common share
|
|
$ |
68.86 |
|
|
$ |
38.50 |
|
|
$ |
39.20 |
|
|
Market value of common shares (in billions)(3)
|
|
$ |
11.71 |
|
|
$ |
12.01 |
|
|
|
|
|
|
|
(1) |
The May equivalent price per share reflects the fluctuating
value of Federated common stock that May stockholders would
receive for each share of May common stock if the merger was
completed on either February 25, 2005, or May 20,
2005. The May equivalent price per share is equal to the sum of
(i) $17.75 and (ii) the closing price of Federated
common stock on the applicable date multiplied by 0.3115. |
|
(2) |
Based on 167,598,278 shares of Federated common stock and
293,834,196 shares of May common stock outstanding and May
ESOP preference shares convertible into 14,036,843 shares
of May common stock as of February 25, 2005. |
|
(3) |
Based on 170,112,496 shares of Federated common stock and
299,443,318 shares of May common stock outstanding and May
ESOP preference shares convertible into 12,550,620 shares
of May common stock as of May 20, 2005. |
21
RISK FACTORS
In deciding whether to vote for approval and adoption of the
merger agreement and the transactions contemplated by the merger
agreement, including the merger, in the case of May
stockholders, or for approval of the issuance of Federated
common stock, in the case of Federated stockholders, we urge you
to carefully consider all of the information we have included
and incorporated by reference in this joint proxy statement/
prospectus. See Where You Can Find More Information
beginning on page 185. You should also read and consider
the risks associated with each of the businesses of Federated
and May because these risks will also affect the combined
company. These risks can be found in the Federated and May
Annual Reports on Form 10-K and Form 10-K/A,
respectively, for the year ended January 29, 2005, which
are filed with the SEC and incorporated by reference into this
joint proxy statement/ prospectus. In addition, we urge you to
carefully consider the following material risks relating to the
merger and the business of the combined company.
Risks Relating to the Merger
|
|
|
The merger is subject to certain closing conditions that,
if not satisfied or waived, will result in the merger not being
completed, which may cause the market price of Federated common
stock or May common stock to decline. |
The merger is subject to customary conditions to closing,
including the receipt of required approvals of the stockholders
of May and Federated. If any condition to the merger is not
satisfied or, if permissible, waived, the merger will not be
completed. In addition, Federated and May may terminate the
merger agreement in certain circumstances. If Federated and May
do not complete the merger, the market price of Federated common
stock or May common stock may fluctuate to the extent that the
current market prices of those shares reflect a market
assumption that the merger will be completed. Federated and May
will also be obligated to pay certain investment banking,
financing, legal and accounting fees and related expenses in
connection with the merger, whether or not the merger is
completed. In addition, Federated and May have each diverted
significant management resources in an effort to complete the
merger and are each subject to restrictions contained in the
merger agreement on the conduct of its business. If the merger
is not completed, each of Federated and May will have incurred
significant costs, including the diversion of management
resources, for which it will have received little or no benefit.
Further, in specified circumstances, May and Federated may be
required to pay to the other a termination fee of up to
$350 million if the merger agreement is terminated. For a
detailed description of the circumstances in which such
termination fee will be paid, see The Merger
Agreement Termination Fees beginning on
page 116.
|
|
|
Whether or not the merger is completed, the announcement
and pendency of the merger could cause disruptions in the
businesses of Federated and May, which could have an adverse
effect on their business and financial results. |
Whether or not the merger is completed, the announcement and
pendency of the merger could cause disruptions in the businesses
of Federated and May. Specifically:
|
|
|
|
|
current and prospective employees may experience uncertainty
about their future roles with the combined company, which might
adversely affect Federated and Mays ability to retain key
managers and other employees; and |
|
|
|
the attention of management of each of Federated and May may be
directed toward the completion of the merger. |
|
|
|
Certain directors and executive officers of May have
interests and arrangements that are different from, or in
addition to, May stockholders. |
When considering the recommendation of the May board of
directors with respect to the merger, May stockholders should be
aware that some directors and executive officers of May have
interests in the merger
22
that are different from, or in addition to, their interests as
stockholders and the interests of stockholders generally. These
interests include:
|
|
|
|
|
payments under employment agreements and severance agreements
which, in either case, may be triggered if the executive
officers employment is terminated under certain
circumstances following the merger for Mays 13
current executive officers, the aggregate of these payments
could be up to approximately $46.8 million; |
|
|
|
potential appointment of two members of Mays board of
directors to the Federated board of directors following the
merger; |
|
|
|
potentially becoming executive officers, employees or
consultants of Federated after the transaction; |
|
|
|
accelerated vesting and exercisability of May stock options and
restricted stock issued under Mays equity compensation
plans Mays 13 current executive officers and 8
current non-management directors currently hold, in the
aggregate, 511,805 and 49,990 shares of restricted stock,
respectively, and Mays 13 current executive officers hold
828,450 unvested stock options with a weighted average exercise
price of $30.988 per share; |
|
|
|
continued benefits under May plans for one year following the
effective date of the merger, as well as continued compensation
and benefits from one year following the effective date of the
merger through the third year following the effective date of
the merger that are in the aggregate substantially comparable to
that provided by May immediately prior to the effective time of
the merger; |
|
|
|
accelerated payment of previously vested amounts credited under
Mays deferred compensation programs Mays
13 current executive officers currently have credited to their
accounts an aggregate of approximately $5.82 million and
217,055 stock units and Mays 8 non-management
directors currently have credited to their accounts an aggregate
of approximately $300,000 and 187,965 stock units; and |
|
|
|
Federateds agreement to indemnify each present and former
May officer and director against liabilities arising out of that
persons services as an officer or director, and maintain
directors and officers liability insurance for a
period of six years after closing to cover May directors and
officers, subject to certain limitations. |
As a result of these interests, these directors and executive
officers may be more likely to support and to vote to adopt the
merger agreement than if they did not have these interests.
Stockholders should consider whether these interests may have
influenced those directors and officers to support or recommend
adoption of the merger agreement. As of the close of business on
the record date for the May annual meeting, May directors and
executive officers were entitled to vote less than 1% of the
then-outstanding shares of May common stock. See The
Merger Interests of May Directors and Executive
Officers in the Merger beginning on page 83.
|
|
|
The unaudited pro forma financial data included in this
joint proxy statement/ prospectus are preliminary and
Federateds actual financial position and results of
operations may differ materially from the unaudited pro forma
financial data included in this joint proxy statement/
prospectus. |
The unaudited pro forma financial data in this joint proxy
statement/ prospectus reflect adjustments, which are based upon
preliminary estimates, to allocate the purchase price to
Mays net assets. The purchase price allocation reflected
in this joint proxy statement/ prospectus is preliminary, and
final allocation of the purchase price will be based upon the
actual purchase price and the actual assets and liabilities of
May as of the date of the completion of the merger. Federated
may need to revise materially its current estimates of those
assets and liabilities as the valuation process and accounting
policy review are finalized. Accordingly, the actual purchase
accounting adjustments may differ materially from the pro forma
adjustments reflected in this joint proxy statement/ prospectus.
The unaudited pro forma financial data in this joint proxy
statement/ prospectus are presented for illustrative purposes
only and are not necessarily indicative of what Federateds
actual financial position or
23
results of operations would have been had the merger been
completed on the dates indicated. The unaudited pro forma
financial data in this joint proxy statement/ prospectus do not
give effect to (1) Federated or Mays results of
operations or other transactions or developments since
January 29, 2005, (2) the synergies, cost savings and
one-time charges expected to result from the merger or
(3) the effects of transactions or developments, including
sales of stores or other assets, which may occur after the
merger. In addition, the unaudited pro forma financial data in
this joint proxy statement/ prospectus assume the absence of any
adjustment to the purchase price provided for in the merger
agreement. The foregoing matters, Federateds possible sale
of its or Mays credit card related assets and use of the
proceeds from such a transaction to fund the cash portion, or to
repay debt incurred to fund the cash portion, of the purchase
price payable in the merger, and other factors could cause both
Federateds pro forma historical financial position and
results of operations, and Federateds actual future
financial position and results of operations, to differ
materially from those presented in the unaudited pro forma
financial data in this joint proxy statement/ prospectus.
|
|
|
The value of the Federated common stock that May
stockholders receive in the merger may be less than the value of
such Federated common stock when the merger was publicly
announced. Further, at the May annual meeting, May stockholders
will not know the exact value of Federated common stock that
will be issued in the merger. |
The exchange ratio for Federated common stock to be issued in
the merger has been fixed. The price of Federated common stock
will fluctuate until Mays stockholders receive their
shares. Federated and May are working to complete the merger as
quickly as possible. However, the time period between the
stockholder votes taken at the annual meetings and the
completion of the merger will depend upon the status of
antitrust clearance that must be obtained prior to the
completion of the merger and the satisfaction or waiver of the
other conditions described in this joint proxy statement/
prospectus, and there is currently no way to predict how long it
will take to obtain these approvals. Because the date when the
merger is completed may be later than the date of the annual
meetings, Federated and May stockholders will not know the exact
value of the Federated common stock that will be issued in the
merger at the time they vote on the merger proposals. As a
result, if the market price of Federated common stock at the
completion of the merger is higher or lower than the market
price on the date of the May annual meeting, the value of the
Federated common stock received by May stockholders in the
merger will be higher or lower, respectively, than the value of
such Federated common stock on the date of the May annual
meeting.
|
|
|
If the total value of the Federated common stock to be
received falls below 40% of the total consideration, May
stockholders could be required to accept $18.75 per share
in cash and 0.3115 shares of Federated common stock in a
transaction that is currently taxable to such May
stockholders. |
Generally, in order to preserve the tax-deferral feature of the
merger sought by qualifying it as a reorganization within the
meaning of Section 368(a) of the Internal Revenue Code, the
market value of the Federated common stock portion of the total
consideration paid in the merger, as of the closing, must
represent a sufficiently high proportion of the total
consideration to satisfy the so-called continuity of
interest requirement for such reorganizations. The
continuity of interest requirement would begin to be
in doubt if the per share market price of Federated common stock
were to deteriorate so substantially that the total common stock
portion of the total consideration constituted less than 40% of
the total consideration. If the opinions described under the
caption Material United States Federal Income Tax
Consequences were not able to be delivered by reason of
such a price deterioration in Federated common stock, Federated
would then have the option to increase the number of shares of
Federated common stock issuable in the merger to maintain
qualification as a reorganization. If Federated were to decline
to make such an election, May would then have the right to
require Federated to increase the cash portion of the
consideration payable by $1.00 to $18.75 and to complete the
merger, notwithstanding that the merger would be fully taxable
to May stockholders. May would also have the right to decline to
complete the merger. See the Risk Factor immediately above
generally describing the risk relating to the value of the
Federated common stock that May stockholders receive in the
merger, as well as The Merger Agreement Merger
Consideration beginning on page 97 and The
Merger Agreement Conditions to Completion of the
Merger beginning on page 111. May does not currently
anticipate requesting updated fairness opinions from its
financial advisors in the event
24
the consideration to be received by May stockholders will differ
as described above as a result of a significant decline in the
value of Federated common stock.
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Federated may be required under the merger agreement to
dispose of assets that account for up to $4 billion in
annual net sales if required by governmental entities to obtain
antitrust clearance for the merger. |
Each of Federated and May has agreed to use its reasonable best
efforts to obtain all governmental clearances or approvals under
federal, state or foreign antitrust laws. In connection with
obtaining antitrust clearance for the proposed merger, Federated
may be required under the merger agreement to dispose of any
assets required by governmental entities, but only to the extent
such assets do not account for more than $4 billion in net
sales for the most recently completed fiscal year. It is
uncertain whether asset dispositions will be required and in
what amount, whether Federated will be able to dispose of such
assets or, if those assets are sold, at what price they may be
sold and the impact that such dispositions may have on
Federateds profitability.
Risks Relating to Federateds Operations After the
Consummation of the Merger
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Federateds failure to integrate May successfully and
on a timely basis into Federateds operations could reduce
Federateds profitability. |
Federated expects that the acquisition of May will result in
certain synergies, business opportunities and growth prospects.
Federated, however, may never realize these expected synergies,
business opportunities and growth prospects. Federated may
experience increased competition that limits its ability to
expand its business, Federated may not be able to capitalize on
expected business opportunities, including retaining Mays
current retail customers, assumptions underlying estimates of
expected cost savings may be inaccurate, or general industry and
business conditions may deteriorate. In addition, there can be
no assurance that Federateds execution of its post-merger
strategy to rebrand certain May stores will improve its
operating performance. Integrating operations will require
significant efforts and expenses on the part of both Federated
and May. Personnel may leave or be terminated because of the
merger. Federateds management may have its attention
diverted while trying to integrate May. If these factors limit
Federateds ability to integrate the operations of May
successfully or on a timely basis, Federateds expectations
of future results of operations, including certain cost savings
and synergies expected to result from the merger, may not be
met. In addition, Federateds growth and operating
strategies for Mays business, including the possibility of
rebranding certain May stores, may be different from the
strategies that May currently is pursuing. If Federateds
strategies are not the proper strategies for May, it could have
a material adverse effect on the business, financial condition
and results of operations of Federated.
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The results of Federateds operations after the
merger may be affected by factors different from, or in addition
to, those currently affecting the results of Mays
operations, and the market value of Federated common stock may
decrease after the closing date of the merger. |
Upon completion of the merger, the holders of May common stock
will become holders of Federated common stock. Federated is
involved in different geographic areas than May and the results
of Federateds operations after the merger may be affected
by factors different from or in addition to those currently
affecting the results of Mays operations. The market value
of the shares of Federated common stock that May stockholders
receive in the merger could decrease following the closing date
of the merger. For a discussion of the businesses of Federated
and May and factors to consider in connection with those
businesses, please see the documents incorporated by reference
into this joint proxy statement/ prospectus and listed under the
section captioned Where You Can Find More
Information beginning on page 185.
25
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The price of Federated common stock has been volatile and
may continue to fluctuate significantly, which may cause you to
lose a significant portion of your investment. |
The market price of Federated common stock has been and may
continue to be volatile. From February 1, 2002, to
May 20, 2005, the sale price of Federated common stock
ranged from a low of $23.51 per share to a high of
$69.05 per share. Federated common stock may continue to be
subject to fluctuations as a result of a variety of factors,
including factors beyond its control. These include:
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competitive conditions in retail and related services industries; |
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changes in consumer confidence, tastes, preferences, fashion
trends and spending; |
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the availability and level of consumer debt; |
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anticipated cash flow and the ability of Federated to maintain
sufficient operating cash flow and liquidity; |
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the possibility that new business and strategic options for one
or more business segments will be identified, potentially
including selective acquisitions, dispositions, restructurings,
joint ventures and partnerships; |
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trade restrictions, tariffs and other factors potentially
affecting the ability to find qualified vendors and access
products in an efficient manner; |
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the ability to successfully implement initiatives to improve
inventory management capabilities; |
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changes in interest rates; |
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social and political conditions such as war, political unrest
and terrorism or natural disasters; |
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volatility in financial markets; |
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changes in debt ratings, credit spreads and cost of funds; |
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the possibility of interruptions in systematically accessing the
public debt markets; |
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the impact of seasonal buying patterns, which are difficult to
forecast with certainty; and |
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general economic conditions and normal business uncertainty. |
Federated may fail to meet expectations of its stockholders or
of analysts at some time in the future, and its stock price
could decline as a result. In addition, sales of a substantial
number of shares of Federated common stock in the public market
or the appearance that these shares are available for sale could
adversely affect the market price for Federated common stock.
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Anti-takeover provisions could delay, deter or prevent a
change in control of Federated even if the change in control
would be beneficial to Federated stockholders. |
Federated is a Delaware corporation subject to Delaware state
law. Some provisions of Delaware law could interfere with or
restrict takeover bids or other change in control events
affecting Federated. Also, provisions in Federateds
certificate of incorporation and other agreements to which
Federated is a party could delay, deter or prevent a change in
control of Federated, even if a change in control would be
beneficial to stockholders. One statutory provision prohibits,
except under specified circumstances, Federated from engaging in
any business combination with any stockholder who owns 15% or
more of Federateds common stock (which stockholder, under
the statute, would be considered an interested
stockholder) for a period of three years following the
time that such stockholder became an interested stockholder.
Federateds certificate of incorporation contains a similar
prohibition. In addition, Federated may be required to make
payments to certain officers of Federated under severance
agreements in connection with a change in control of Federated,
which may make Federated a less attractive target to a potential
acquirer.
26
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Federated faces significant competition in the retail
industry. |
Federated conducts its retail merchandising business under
highly competitive conditions. Although Federated is one of the
nations largest retailers, it has numerous and varied
competitors at the national and local levels, including
conventional and specialty department stores, other specialty
stores, category killers, mass merchants, value retailers,
discounters, and Internet and mail-order retailers. Competition
is characterized by many factors, including assortment,
advertising, price, quality, service, location, reputation and
credit availability. If Federated does not compete effectively
with regard to these factors, its results of operations could be
materially and adversely affected.
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Federateds sales and operating results depend on
consumer preferences and fashion trends. |
Federateds sales and operating results depend in part on
its ability to predict or respond to changes in fashion trends
and consumer preferences in a timely manner. Federated develops
new retail concepts and continuously adjusts its industry
position in certain major and private-label brands and product
categories in an effort to satisfy customers. Any sustained
failure to identify and respond to emerging trends in lifestyle
and consumer preferences could have a material adverse affect on
Federateds business. Consumer spending may be affected by
many factors outside of Federateds control, including
competition from store-based retailers, mail-order and Internet
companies, consumer confidence and preferences, weather that
affects consumer traffic, and general economic conditions.
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Federated is subject to global economic and political
conditions. |
Global economic and political factors that are beyond
Federateds control influence its forecasts and directly
affect performance. These factors include interest rates, rates
of economic growth, fiscal and monetary policies of governments,
inflation, deflation, consumer credit availability, consumer
debt levels, tax rates and policy, unemployment trends,
terrorist threats and activities, worldwide military and
domestic disturbances and conflicts, and other matters that
influence consumer confidence, spending and tourism. Increasing
volatility in financial markets may cause these factors to
change with a greater degree of frequency and magnitude.
Increases in interest rates may increase our financing costs.
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Federated depends upon the success of its advertising and
marketing programs. |
Federateds advertising and promotional costs, net of
cooperative advertising allowances, amounted to
$716 million for the fiscal year ended January 29,
2005. Its business depends on high customer traffic in its
stores and effective marketing. Federated has many initiatives
in this area, and it often changes its advertising and marketing
programs. If its advertising and marketing efforts are not
effective, this could negatively affect its results.
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
This joint proxy statement/ prospectus, including information
and other documents incorporated by reference into this joint
proxy statement/ prospectus, contains or may contain
forward-looking statements intended to qualify for
the safe harbor from liability established by the Private
Securities Litigation Reform Act of 1995 that relate to the
businesses of Federated and May. These forward-looking
statements are found at various places throughout this joint
proxy statement/ prospectus and the other documents incorporated
by reference in this joint proxy statement/ prospectus. These
forward-looking statements include, without limitation, those
relating to projected financial and operating results, earnings
and cash flows, future actions, new projects, strategies and the
outcome of contingencies such as legal proceedings, in each case
relating to Federated or May, respectively. Those forward
looking statements, wherever they occur in this joint proxy
statement/ prospectus or the other documents incorporated by
reference in this joint proxy statement/ prospectus, are
necessarily estimates or projections reflecting the judgment of
the respective management of Federated and May and are subject
to known and unknown risks and uncertainties that could cause
actual results to differ materially from any future results,
performance or achievements expressed or implied by those
forward-looking statements.
27
You should understand that the risks, uncertainties, factors and
assumptions listed and discussed in this joint proxy statement/
prospectus, including those set forth under the heading
Risk Factors beginning on page 22; the risks
discussed in Mays Annual Report on Form 10-K/A for
the fiscal year ended January 29, 2005, in Item 7A
Qualitative and Quantitative Disclosures about Market
Risk; the risks discussed in Federateds Annual
Report on Form 10-K for the fiscal year ended
January 29, 2005, in Item 7A Qualitative and
Quantitative Disclosures about Market Risk; and the
following important factors and assumptions, could affect the
future results of Federated following the merger, or the future
results of Federated and May if the merger does not occur, and
could cause actual results to differ materially from those
expressed in any forward-looking statements:
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the ability of Federated to integrate the May businesses with
Federateds businesses and achieve the expected synergies
from the merger; |
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the approval and adoption of the merger agreement and the
transactions contemplated by the merger agreement, including the
merger, at the May annual meeting; |
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the approval of the issuance of Federated common stock in
connection with the merger at the Federated annual meeting; |
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the timing of the completion of the merger; |
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the actual financial position and results of operations of
Federated following the merger, which may differ significantly
from the pro forma financial data contained in this joint proxy
statement/ prospectus; |
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the impact of competitive products and pricing; |
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general market conditions in the retail industry; |
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the level of capital resources required for future acquisitions
and operations; and |
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changes in laws and regulations. |
You are cautioned not to place undue reliance on these
forward-looking statements, which speak only as of the date of
the joint proxy statement/ prospectus or, in the case of
documents incorporated by reference, as of the date of those
documents. Neither Federated nor May undertakes any obligation
to publicly update or release any revisions to these
forward-looking statements to reflect events or circumstances
after the date of this joint proxy statement/ prospectus or to
reflect the occurrence of unanticipated events, except as
required by law.
THE MAY ANNUAL MEETING
General
This joint proxy statement/ prospectus is being provided to May
stockholders as part of a solicitation of proxies by the May
board of directors for use at the annual meeting of May
stockholders and at any adjournment or postponement thereof.
This joint proxy statement/ prospectus is first being furnished
to stockholders of May on or about May 31, 2005. In
addition, this joint proxy statement/ prospectus is being
furnished to May stockholders as a prospectus for Federated in
connection with the issuance by Federated of shares of Federated
common stock to May stockholders in connection with the merger.
This joint proxy statement/ prospectus provides May stockholders
with the information they need to know to be able to vote or
instruct their vote to be cast at the annual meeting of May
stockholders.
Date, Time and Place of the May Annual Meeting
The annual meeting of May stockholders will be held at
10:00 a.m., Eastern Daylight Savings Time, on July 13,
2005, at The Pierre-New York, 2 East 61st Street, New York,
New York 10021.
28
Purposes of the May Annual Meeting
At the May annual meeting, Mays stockholders will be asked:
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To approve and adopt the merger agreement and the transactions
contemplated by the merger agreement, including the merger; |
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To elect four members of Mays board of directors; |
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To adopt an amendment to Mays amended and restated
certificate of incorporation to provide for the annual election
of directors; |
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To ratify the appointment of Deloitte & Touche LLP as
Mays independent registered public accounting firm for the
fiscal year ending January 28, 2006; |
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To approve adjournments or postponements of the May annual
meeting, if necessary, to permit further solicitation of proxies
if there are not sufficient votes at the time of the May annual
meeting to approve the above proposals; and |
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To consider and take action upon any other business that may
properly come before the May annual meeting, or any reconvened
meeting, following an adjournment or postponement of the May
annual meeting. |
Record Date; Outstanding Shares; Shares Entitled to Vote
The record date for the meeting for May stockholders was
May 20, 2005. This means that you must have been a
stockholder of record of Mays common stock or of
Mays ESOP preference shares at the close of business on
May 20, 2005, in order to vote at the annual meeting. You
are entitled to one vote for each share of common stock you own
(or in the case of ESOP preference shares, one vote for each
whole share of May common stock represented by such ESOP
preference share). On Mays record date, Mays voting
securities carried 311,993,938 votes, which consisted of
299,443,318 shares of common stock (excluding
21,012,176 shares of treasury stock) and 371,457 ESOP
preference shares, which carry 12,550,620 votes.
A complete list of May stockholders entitled to vote at the May
annual meeting will be available for inspection at the executive
offices of May during regular business hours for a period of no
less than ten days before the annual meeting.
Quorum and Voting Rights
A quorum of stockholders is necessary to hold a valid annual
meeting of May. The required quorum for the transaction of
business at the annual meeting is a majority of the outstanding
shares of May common stock entitled to vote and present at the
annual meeting, whether in person or by proxy. All shares of May
common stock represented at the May annual meeting, including
abstentions and broker non-votes, will be treated as shares that
are present for purposes of determining the presence of a
quorum. Broker non-votes are shares held by a
broker, bank or other nominee that are represented at the
meeting, but with respect to which such broker, bank or nominee
is not instructed by the beneficial owner of such shares to vote
on the particular proposal and the broker, bank or other nominee
does not have discretionary voting power on such proposal. For
purposes of voting on each of the proposals set forth below, the
owners of shares of common stock and ESOP preference shares vote
together as one class.
The votes required to approve the respective proposals at the
May annual meeting are:
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Approval and adoption of the merger agreement and the
transactions contemplated by the merger agreement, including the
merger, requires the approval of a majority of the outstanding
shares of May common stock and ESOP preference shares entitled
to vote, voting together as one class. |
29
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The election of four members of Mays board of directors
requires the affirmative vote of a plurality of the shares of
May common stock and ESOP preference shares, voting together as
one class, present in person or represented by proxy at the May
annual meeting and entitled to vote. |
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Approval of the amendment to Mays amended and restated
certificate of incorporation to provide for the annual election
of directors requires the affirmative vote of a majority of the
outstanding shares of May common stock and ESOP preference
shares, voting together as one class. |
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Ratification of the appointment of Deloitte & Touche
LLP as Mays independent registered public accounting firm
for fiscal year ending January 28, 2006, requires the
affirmative vote of the holders of a majority of the shares of
May common stock and ESOP preference shares, voting together as
one class, present in person or represented by proxy and
entitled to vote at the May annual meeting. |
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Approval of adjournments or postponements of the May annual
meeting, if necessary, to permit further solicitation of proxies
if there are not sufficient votes at the time of the May annual
meeting to approve the above proposals, requires the affirmative
vote of a majority of the shares of May common stock and ESOP
preference shares, voting together as one class, present in
person or represented by proxy and entitled to vote at the May
annual meeting. |
For a discussion of how broker non-votes and abstentions will
affect the outcome of the vote on these proposals, see
Voting; Proxies Voting Shares Held in
Street Name beginning on page 33 and
Voting; Proxies Abstaining from
Voting on page 34.
Recommendation of the Board of Directors
As discussed elsewhere in this joint proxy statement/
prospectus, Mays board of directors has approved the
merger agreement and the transactions contemplated by the merger
agreement, including the merger, and has determined that the
transactions contemplated by the merger agreement are advisable
and fair to and in the best interests of May and its
stockholders. The May board of directors recommends that May
stockholders vote:
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FOR the proposal to approve and adopt the merger agreement
and the transactions contemplated by the merger agreement,
including the merger, at the May annual meeting. See
Mays Reasons for the Merger and Recommendation of
Mays Board of Directors beginning on page 51;
and |
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FOR each of the other proposals presented at the May annual
meeting. |
ITEM 1 THE MERGER
As discussed elsewhere in this joint proxy statement/
prospectus, May stockholders are considering and voting on a
proposal to approve and adopt the merger agreement and the
transactions contemplated by the merger agreement, including the
merger. You should read carefully this joint proxy statement/
prospectus in its entirety for more detailed information
concerning the merger agreement and the merger. In particular,
you are directed to the merger agreement, which is attached as
Annex A to this joint proxy statement/ prospectus.
The May board of directors recommends that May stockholders
vote FOR the merger, and
your proxy will be so voted unless you specify otherwise.
ITEM 2 ELECTION OF DIRECTORS
Four directors are to be elected by stockholders at the May
annual meeting. In accordance with the recommendation of the
nominating and governance committee of the board of directors,
the May board of directors has nominated Marsha J. Evans, David
B. Rickard, Joyce M. Roché and R. Dean Wolfe, each of whom
is currently a member of the board, for election. Each
non-management nominee (Mrs. Evans, Mr. Rickard and
Ms. Roché) and Mays other non-management
directors are independent directors under Mays
independence standards described on page 148.
30
The board of directors is currently divided into three classes
and the terms of the remaining directors expire in 2006 or 2007.
If you approve the proposal to amend the amended and restated
certificate of incorporation to provide for the annual election
of directors, as more fully described in the following item, all
four nominees will serve for one year terms expiring at the 2006
annual meeting of stockholders. If you do not approve the
proposal to amend the amended and restated certificate of
incorporation, the four nominees will serve three-year terms
expiring in 2008.
The May board of directors has no reason to believe that any of
the nominees will not serve if elected. However, if any nominee
should subsequently become unavailable to serve as a director,
the May board may designate a substitute nominee and the persons
named as proxies may, in their discretion, vote for such
substitute nominee designated by the May board. Alternatively,
the May board may reduce the number of directors to be elected
at the May annual meeting.
For information regarding the four nominees and regarding the
May board of directors as a whole, see Information about
May Directors of May beginning on
page 145.
The May board of directors recommends that May stockholders
vote FOR the election of the nominees
named above, and your proxy will be so voted unless you
specify otherwise.
ITEM 3 AMENDMENT TO THE AMENDED AND
RESTATED CERTIFICATE OF INCORPORATION TO PROVIDE FOR THE ANNUAL
ELECTION OF DIRECTORS
Article Thirteenth of Mays amended and restated
certificate of incorporation currently provides that the May
board is to be divided into three classes of approximately equal
size that have staggered three-year terms. The May board is
submitting for a stockholder vote a proposal to amend Mays
certificate of incorporation to phase out the classification of
the board and to provide instead for the annual election of all
directors.
May stockholders have considered a proposal submitted by
Mrs. Evelyn Y. Davis, Editor, Highlights and Lowlights, to
declassify the May board of directors at each annual stockholder
meeting since 1988. At each of the last five annual meetings,
the proposal received a favorable vote of a majority of the
votes cast. At each of the last two annual meetings, the
proposal received a favorable vote of a majority of the shares
outstanding. Mrs. Davis submitted again a similar proposal
for consideration at the 2005 May annual meeting.
The nominating and governance committee and the full board
regularly have considered the advantages, disadvantages and
appropriateness of annually elected and staggered boards, taking
a variety of perspectives into account. In light of the
increasing sentiment among Mays stockholders to support
declassifying the board, the boards decision to approve
the merger with Federated and Federateds boards
decision to recommend the declassification of its board,
Mays board of directors, upon recommendation of the
nominating and governance committee, has decided that it is an
appropriate time to recommend that the stockholders declassify
the May board. Mays board has authorized Mays
management to reach an agreement with Mrs. Davis providing
for the withdrawal of Mrs. Davis proposal in return
for the May boards submission of this proposal.
If you approve the amendment to the certificate of
incorporation, all directors standing for election would be
elected for one-year terms, as described below:
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All directors elected at the 2005 annual meeting or thereafter
would be elected for one-year terms; |
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Directors assigned to the class of 2006, who were previously
elected at earlier annual meetings, would stand for election in
2006 and would be elected for one-year terms thereafter; |
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Directors assigned to the class of 2007, who were previously
elected at an earlier annual meeting, would stand for election
in 2007 and would be elected for one-year terms
thereafter; and |
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Vacancies that occur during the year would continue to be filled
by the board of directors to serve only until the next annual
meeting. |
If you do not approve the proposed amendment to Mays
amended and restated certificate of incorporation at this
meeting, the board will remain classified and the directors
elected at this meeting will serve for a term ending at
Mays 2008 annual meeting.
31
The proposed amendment to Mays amended and restated
certificate of incorporation is attached to this joint proxy
statement/ prospectus as Annex G.
The May board of directors recommends that May stockholders
vote FOR the amendment to Mays
amended and restated certificate of incorporation, and your
proxy will be
so voted unless you specify otherwise.
ITEM 4 RATIFICATION OF THE APPOINTMENT
OF INDEPENDENT
REGISTERED PUBLIC ACCOUNTING FIRM
The audit committee appointed Deloitte & Touche LLP, an
independent registered public accounting firm, as auditors for
May and its subsidiaries for the fiscal year ending
January 28, 2006. This appointment is subject to
ratification by May stockholders at the annual meeting. Unless
you direct otherwise, the proxies will vote your shares for the
ratification of this appointment. A representative of
Deloitte & Touche LLP will attend the meeting to
respond to appropriate questions and to make a statement if he
so desires.
For fiscal 2004 and 2003, May paid to Deloitte & Touche
LLP the following fees (dollars in millions):
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2004 | |
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2003 | |
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Audit Fees
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$ |
4.3 |
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$ |
2.6 |
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Audit-Related Fees(1)
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0.3 |
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0.3 |
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Tax Fees(2)
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0.2 |
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0.2 |
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All Other Fees(3)
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0.3 |
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0.0 |
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Total fees
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$ |
5.1 |
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$ |
3.1 |
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(1) |
Audit-Related Fees include fees related to benefit plans,
foundation and trust audits. |
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Tax Fees consist of tax compliance services. |
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(3) |
All Other Fees include acquisition financial due diligence and
purchase accounting services. |
The May board of directors recommends that May stockholders
vote FOR the ratification of the appointment of Deloitte
& Touche LLP, and your proxy will be so voted unless you
specify otherwise.
ITEM 5 APPROVE ADJOURNMENTS OR
POSTPONEMENTS OF THE ANNUAL MEETING, IF NECESSARY, TO PERMIT
FURTHER SOLICITATION OF PROXIES
Stockholders may be asked to vote on a proposal to adjourn or
postpone the annual meeting, if necessary, to permit further
solicitation of proxies if there are not sufficient votes at the
time of the annual meeting to approve the other proposals. See
the discussion regarding adjournments and postponements below in
Other Business; Adjournments and
Postponements on page 36.
The May board of directors recommends that May stockholders,
if necessary or appropriate, vote FOR the proposal to adjourn or
postpone the May annual meeting, and your proxy will be so voted
unless you specify otherwise.
Voting by Mays Directors and Executive Officers
As of the record date for the May annual meeting, Mays
directors and executive officers had the right to vote
approximately 1,067,940 shares of the then outstanding May
voting stock at the May annual meeting. As of the record date of
the May annual meeting, these shares represented less than 1% of
the May common stock outstanding and entitled to vote at the
meeting.
Voting; Proxies
You may vote in person at the May annual meeting or by proxy. We
recommend you vote by proxy even if you plan to attend the
annual meeting. If you vote by proxy, you may change your vote
if you attend the annual meeting.
32
If you own common stock in your own name, you are an owner
of record. This means that you may use the enclosed proxy
card(s) to tell the persons named as proxies how to vote your
shares. If you properly complete, sign and date your proxy
card(s), or, if available, vote by telephone or over the
Internet, your proxy will be voted in accordance with your
instructions. If you participate in Mays dividend
reinvestment plan, the enclosed proxy card(s) includes the
shares in your dividend reinvestment plan account. The named
proxies will vote all shares at the meeting that have been
properly voted (whether by Internet, telephone or mail) and not
revoked. If you sign and return your proxy card(s) but do not
mark your card(s) to tell the proxies how to vote your shares on
each proposal, your proxy will be voted FOR each of the
proposals presented.
If you hold shares of May common stock in a stock brokerage
account or through a bank, broker or other nominee, or, in other
words, in street name, please follow the voting instructions
provided by that entity. Also, see Voting
Shares Held in Street Name beginning on page 33.
If you participate in Mays profit sharing plan, you will
receive a voting instruction card for the common stock and ESOP
preference shares allocated to your accounts in that plan. You
may instruct the plan trustee on how to vote your shares by
signing, dating and mailing the enclosed voting instruction
card(s), or by submitting your voting instructions by telephone
or over the Internet. The plan trustee will vote your shares in
accordance with your instructions and the terms of the plan. If
you fail to vote, the trustee, subject to its fiduciary
obligations under the Employee Retirement Income Security Act of
1974, as amended, which is referred to as ERISA, will vote your
shares in the same proportion as it votes the shares for which
it receives instructions from other plan participants. Under the
terms of the plan, the trustee must receive your voting
instructions by 11:59 p.m., Eastern Daylight Savings Time
on July 8, 2005.
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Voting Shares Held in Street Name |
Generally, a broker, bank or other nominee may only vote the
common stock that it holds in street name for you in accordance
with your instructions. However, if your broker, bank or other
nominee has not received your instructions, your broker, bank or
other nominee has the discretion to vote on certain matters that
are considered routine. A broker non-vote occurs if
your broker, bank or other nominee cannot vote on a particular
matter because your broker, bank or other nominee has not
received instructions from you and because the proposal is not
routine.
If you wish to vote on the proposal to adopt and approve the
merger, you must provide instructions to your broker, bank or
other nominee because this proposal is not routine. If you do
not provide your broker, bank or other nominee with
instructions, your broker, bank or other nominee will not be
authorized to vote with respect to adopting and approving the
merger, and a broker non-vote will occur. This will have the
same effect as a vote against the approval and adoption of the
merger agreement and the transactions contemplated by the merger
agreement, including the merger.
If you wish to vote on the proposal to amend Mays amended
and restated certificate of incorporation, you must provide
instructions to your broker, bank or other nominee because this
proposal is not routine. If you do not provide your broker, bank
or other nominee with instructions, your broker, bank or other
nominee will not be authorized to vote with respect to amending
the amended and restated certificate of incorporation and a
broker non-vote will occur. This will have the same effect as a
vote against the amendment of the amended and restated
certificate of incorporation.
If you wish to vote on the proposals to elect the four
directors, to ratify the appointment of Mays independent
registered public accounting firm or to act upon any other
routine business that may properly come before the May annual
meeting, you should provide instructions to your broker, bank or
other nominee. If you do not provide instructions to your
broker, bank or other nominee, your broker, bank or other
nominee generally will have the authority to vote on the
election of directors, the ratification of the appointment of
the independent registered public accounting firm and other
routine matters.
If you wish to vote on any proposal to approve adjournments or
postponements of the May annual meeting, you should provide
instructions to your broker, bank or other nominee. If you do
not provide instructions to your broker, bank or other nominee,
your broker, bank or other nominee generally will have the
33
authority to vote on proposals such as the adjournment or
postponement of meetings. However, your broker, bank or other
nominee will not be authorized to vote on any proposal to
adjourn or postpone the meeting solely relating to the
solicitation of proxies to approve and adopt the merger
agreement and the transactions contemplated by the merger
agreement, including the merger.
Your abstention from voting will have the following effects:
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Abstentions will have the same effect as a vote against the
approval and adoption of the merger agreement and the
transactions contemplated by the merger agreement, including the
merger. |
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Abstentions will have the same effect as a vote against the
approval of the amendment to Mays amended and restated
certificate of incorporation. |
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Abstentions will not be counted for determining the election of
the board of directors. As a result, abstentions will not have
an effect on the outcome of the election of the board of
directors. |
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Abstentions will have the same effect as a vote against the
ratification of the appointment of the independent registered
public accounting firm. |
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Abstentions will have the same effect as a vote against the
approval of adjournments or postponements of the May annual
meeting. |
How to Vote
You have three voting options:
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Internet: You can vote over the Internet at the
Web address shown on your proxy card or voting instruction card
(www.proxyvote.com). Internet voting is available 24 hours
a day. If you vote over the Internet, do not return your proxy
card(s) or voting instruction card(s). |
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Telephone: You can vote by telephone by calling
the toll-free number on your proxy card(s) or voting instruction
card(s). Telephone voting is available 24 hours a day.
Easy-to-follow voice prompts allow you to vote your shares and
confirm that your instructions have been properly recorded. If
you vote by telephone, do not return your proxy card(s) or
voting instruction card(s). |
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Mail: You can vote by mail by simply signing,
dating and mailing your proxy card(s) or voting instruction
card(s) in the postage-paid envelope included with this joint
proxy statement/ prospectus. |
A number of banks and brokerage firms participate in a program
that also permits stockholders whose shares are held in street
name to direct their vote over the Internet or by telephone.
This option, if available, will be reflected in the voting
instructions from the bank or brokerage firm that accompany this
joint proxy statement/ prospectus. If your shares are held in an
account at a bank or brokerage firm that participates in such a
program, you may direct the vote of these shares by the Internet
or telephone by following the voting instructions enclosed with
the proxy form from the bank or brokerage firm. The Internet and
telephone proxy procedures are designed to authenticate
stockholders identities, to allow stockholders to give
their proxy voting instructions and to confirm that those
instructions have been properly recorded. Votes directed by the
Internet or telephone through such a program must be received by
11:59 p.m., Eastern Daylight Savings Time, on July 12,
2005. Requesting a legal proxy prior to the deadline described
above will automatically cancel any voting directions you have
previously given by the Internet or by telephone with respect to
your shares. Directing the voting of your shares will not affect
your right to vote in person if you decide to attend the May
annual meeting; however, you must first obtain a signed and
properly executed legal proxy from your bank, broker or other
nominee to vote your shares held in street name at the annual
meeting.
34
Revoking Your Proxy
You can revoke your proxy at any time before its exercise by:
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sending a written notice to the Corporate Secretary of May, at
611 Olive Street, St. Louis, Missouri 63101, bearing a
date later than the date of the proxy, that is received prior to
the May annual meeting and states that you revoke your proxy; |
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voting again over the Internet or by telephone; |
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signing another proxy card(s) or voting instruction card(s)
bearing a later date and mailing it so that it is received prior
to the annual meeting; or |
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attending the annual meeting and voting in person, although
attendance at the annual meeting will not, by itself, revoke a
proxy. |
If your shares are held in street name by your broker, you will
need to contact your broker to revoke your proxy.
Other Voting Matters
If you plan to attend the May annual meeting and wish to vote in
person, we will give you a ballot at the annual meeting.
However, if your shares are held in street name, you must first
obtain a legal proxy authorizing you to vote the shares in
person, which you must bring with you to the annual meeting.
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Electronic Access to Proxy Materials |
This joint proxy statement/ prospectus and Mays 2004
Form 10-K/A for the fiscal year ending January 29,
2005, are available on our Internet site at www.mayco.com.
We can provide reasonable assistance to help you participate in
the annual meeting if you tell us about your disability and how
you plan to attend. Please call or write to Mays Corporate
Secretary at 611 Olive Street, St. Louis, Missouri 63101,
(314) 342-6300.
Proxy Solicitations
May is soliciting proxies for the May annual meeting from May
stockholders. May will bear the entire cost of soliciting
proxies from May stockholders, except that Federated and May
will share equally the expenses incurred in connection with the
filing of the registration statement of which this joint proxy
statement/ prospectus forms a part with the SEC and the printing
and mailing of this joint proxy statement/ prospectus. In
addition to this mailing, Mays directors, officers and
employees (who will not receive any additional compensation for
their services) may solicit proxies personally, electronically
or by telephone. May has also engaged D.F. King & Co.,
Inc., for a fee of $19,500 plus reimbursement of expenses to
assist in the solicitation of proxies. May and its proxy
solicitors will also request that banks, brokerage houses and
other custodians, nominees and fiduciaries send proxy materials
to the beneficial owners of May common stock and will, if
requested, reimburse the record holders for their reasonable
out-of-pocket expenses in doing so. The extent to which these
proxy-soliciting efforts will be necessary depends upon how
promptly proxies are submitted. You should promptly vote by
telephone or over the Internet or submit your completed proxy
card(s) without delay by mail.
Stockholders should not submit any stock certificates with
their proxy cards.
35
Other Business; Adjournment and Postponements
We are not aware of any other business to be acted upon at the
annual meeting. If, however, other matters are properly brought
before the annual meeting, your proxies will have discretion to
vote or act on those matters according to their best judgment.
Any adjournment may be made from time to time by approval of
the stockholders holding a majority of the voting power present
in person or by proxy at the annual meeting, whether or not a
quorum exists, without further notice other than by an
announcement made at the annual meeting. In addition, if the
adjournment of the annual meeting is for more than 30 days
or if after the adjournment a new record date is fixed for an
adjourned meeting, notice of the adjourned meeting must be given
to each stockholder of record entitled to vote at such annual
meeting. If a quorum is not present at the annual meeting,
stockholders may be asked to vote on a proposal to adjourn or
postpone the annual meeting to solicit additional proxies. If a
quorum is not present at the annual meeting, the holders of a
majority of the shares entitled to vote who are present in
person or by proxy may adjourn or postpone the annual meeting.
If a quorum is present at the annual meeting but there are not
sufficient votes at the time of the annual meeting to approve
the other proposal(s), holders of common stock may also be asked
to vote on a proposal to approve the adjournment or postponement
of the annual meeting to permit further solicitation of
proxies.
Assistance
If you need assistance in completing your proxy card or have
questions regarding Mays annual meeting, please contact
Mays Investor Relations at (314) 342-6300 or write to
The May Department Stores Company, 611 Olive Street,
St. Louis, Missouri 63101, Attention: Investor Relations.
THE FEDERATED ANNUAL MEETING
General
This joint proxy statement/ prospectus is being provided to
Federated stockholders as part of a solicitation of proxies by
the Federated board of directors for use at the annual meeting
of Federated stockholders and at any adjournment or postponement
thereof. This joint proxy statement/ prospectus is first being
furnished to stockholders of Federated on or about May 31,
2005. This joint proxy statement/ prospectus provides Federated
stockholders with the information they need to know to be able
to vote or instruct their vote to be cast at the annual meeting
of Federated stockholders.
Date, Time and Place of the Federated Annual Meeting
The annual meeting of Federated stockholders will be held at
11:00 a.m., Eastern Daylight Savings Time, on July 13,
2005, at Federateds corporate offices located at 7 West
Seventh Street, Cincinnati, Ohio 45202.
Purposes of the Federated Annual Meeting
At the Federated annual meeting, Federated stockholders will be
asked:
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to authorize the issuance of Federated common stock pursuant to
the terms of the merger agreement; |
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to elect three Class II members of Federateds board
of directors; |
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to amend Federateds certificate of incorporation to adopt
a system for the annual election of all of Federateds
directors; |
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to ratify the appointment of KPMG LLP as Federateds
independent registered public accounting firm for the fiscal
year ending January 28, 2006; |
36
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to approve adjournments or postponements of the Federated annual
meeting, if necessary to permit further solicitation of proxies
if at the time of the Federated annual meeting to approve the
above proposals; and |
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to consider and take action upon any other business that may
properly come before the Federated annual meeting or any
reconvened meeting following an adjournment or postponement of
the Federated annual meeting. |
Record Date; Outstanding Shares; Shares Entitled to Vote
The record date for the meeting for Federated stockholders was
May 20, 2005. This means that you must have been a
stockholder of record of Federateds common stock at the
close of business on May 20, 2005, in order to vote at the
annual meeting. You are entitled to one vote for each share of
common stock you own. On Federateds record date,
170,112,496 shares of common stock were outstanding. This number
excludes shares held in the treasury of Federated or by
subsidiaries of Federated, which carry no votes.
A complete list of Federated stockholders entitled to vote at
the Federated annual meeting will be available for inspection at
the executive offices of Federated during regular business hours
for a period of no less than ten days before the annual meeting.
The Federated board of directors has adopted a policy under
which all voting materials that identify the votes of specific
stockholders will be kept confidential and will not be disclosed
to officers, directors or employees of Federated or third
parties except as described below. Voting materials may be
disclosed in any of the following circumstances:
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if required by applicable law; |
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to persons engaged in the receipt, counting, tabulation or
solicitation of proxies who have agreed to maintain stockholder
confidentiality as provided in the policy; |
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in those instances in which stockholders write comments on their
proxy cards or otherwise consent to the disclosure of their vote
to Federateds management; |
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in the event of a proxy contest or a solicitation of proxies in
opposition to the voting recommendations of the board; |
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in respect of a stockholder proposal that Federateds
Nominating and Corporate Governance Committee, after having
allowed the proponent of the proposal an opportunity to present
its views, determines is not in the best interests of Federated
and its stockholders; and |
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in the event that representatives of Federated determine in good
faith that a bona fide dispute exists as to the authenticity or
tabulation of voting materials. |
The policy described above will apply to the Federated annual
meeting.
Quorum and Voting Rights
A quorum of stockholders is necessary to hold a valid annual
meeting of Federated. The holders of a majority of the stock
issued and outstanding and entitled to vote at the annual
meeting, present in person or represented by proxy, will
constitute a quorum at the annual meeting of the stockholders
for the transaction of business at the meeting. All shares of
Federated common stock represented at the Federated annual
meeting, including abstentions and broker non-votes,
will be treated as shares that are present and entitled to vote
for purposes of determining the presence of a quorum.
Broker non-votes are shares held by a broker, bank
or other nominee that are represented at the meeting, but with
respect to which such broker, bank or nominee is not instructed
by the beneficial owner of such shares to vote on the particular
proposal and the broker, bank or nominee does not have
discretionary voting power on such proposal.
37
The votes required to approve the respective proposals at the
Federated annual meeting are:
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The authorization of the issuance of Federated common stock
pursuant to the terms of the merger agreement requires the
approval of at least a majority of the votes cast by the holders
of outstanding shares of Federated common stock present (in
person or by proxy) at the Federated annual meeting, where the
holders of at least a majority of all outstanding shares of
Federated common stock vote on the proposal. |
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The election of three Class II members of Federateds
board of directors requires the affirmative vote of a plurality
of the shares of Federated common stock present in person or
represented by proxy at the Federated annual meeting and
entitled to vote. |
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In order to take effect in accordance with the schedule more
fully described in the proposal, the proposal to amend
Federateds certificate of incorporation to adopt a system
for the annual election of all Federated directors requires the
affirmative vote of a majority of all outstanding shares of
Federated common stock. |
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Ratification of the appointment of KPMG LLP as Federateds
independent registered public accounting firm for the fiscal
year ending January 28, 2006, requires the affirmative vote
of the holders of a majority of Federated common stock present
in person or represented by proxy entitled to vote and actually
voted at the Federated annual meeting. |
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Approval of adjournments or postponements of the Federated
annual meeting, if necessary, to permit further solicitation of
proxies if there are not sufficient votes at the time of the
Federated annual meeting to approve the above proposals,
requires the affirmative vote of the holders of a majority of
Federated common stock present in person or represented by proxy
entitled to vote and actually voted at the Federated annual
meeting. |
For a discussion of how broker non-votes and abstentions will
affect the outcome of the vote on these proposals, see
Voting; Proxies Voting Shares Held
in Street Name beginning on page 41 and
Voting; Proxies Abstaining from
Voting on page 42.
Recommendation of the Board of Directors
As discussed elsewhere in this joint proxy statement/
prospectus, Federateds board of directors has approved the
merger agreement and the transactions contemplated by the merger
agreement, including the merger, and has determined that the
transactions contemplated by the merger agreement are advisable
and fair to and in the best interests of Federated and its
stockholders. The Federated board of directors recommends that
Federated stockholders vote:
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FOR the issuance of Federated common stock pursuant to the
merger agreement. |
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FOR the other proposals presented at the Federated annual
meeting. |
ITEM 1 THE ISSUANCE OF FEDERATED COMMON STOCK
PURSUANT
TO THE MERGER AGREEMENT
As discussed elsewhere in this joint proxy statement/
prospectus, Federated stockholders are considering and voting on
a proposal to approve the issuance of shares of Federated common
stock pursuant to the terms of the merger agreement. Federated
stockholders should read carefully this joint proxy statement/
prospectus in its entirety for more detailed information
concerning the merger agreement and the merger. In particular,
Federated stockholders are directed to the merger agreement,
which is attached as Annex A to this joint proxy
statement/ prospectus.
The Federated board of directors recommends that Federated
stockholders vote FOR the issuance of common stock pursuant
to the merger, and your proxy will be so voted unless you
specify otherwise.
38
ITEM 2 ELECTION OF DIRECTORS
Federateds certificate of incorporation and by-laws
provide that the directors of Federated are to be classified
into three classes, with the directors in each class serving for
three-year terms and until their successors are elected.
Mr. Earl G. Graves, Sr., a Class III director,
will retire at the Federated annual meeting in accordance with
the mandatory retirement policy set forth in Federateds
Corporate Governance Principles.
In accordance with the recommendation of the Nominating and
Corporate Governance Committee, referred to herein as the NCG
Committee, the Federated board of directors has nominated Meyer
Feldberg, Terry J. Lundgren and Marna C. Whittington, each of
whom is currently a member of the board, for election as
Class II Directors. If elected, such nominees will serve
for a three-year term to expire at Federateds annual
meeting of stockholders in 2008 or until their successors are
duly elected and qualified.
The Federated board of directors has no reason to believe that
any of the nominees will not serve if elected. However, if any
nominee should subsequently become unavailable to serve as a
director, the Federated board may designate a substitute nominee
and the persons named as proxies may, in their discretion, vote
for such substitute nominee designated by the Federated board.
Alternatively, the Federated board may reduce the number of
directors to be elected at the Federated annual meeting.
For information regarding the Class II directors nominated
for reelection, and regarding the Federated board of directors
as a whole, see Information about Federated
Directors of Federated beginning on page 118.
The Federated board of directors recommends that Federated
stockholders vote FOR the election of the nominees named
above, and your proxy will be so voted unless you specify
otherwise.
ITEM 3 AMENDMENT TO THE CERTIFICATE OF
INCORPORATION SEEKING THE ANNUAL ELECTION OF ALL DIRECTORS
Federateds certificate of incorporation presently provides
that the Federated board is to be divided into three classes
that have staggered three-year terms. The Federated board is
submitting for a stockholder vote a proposal to amend
Federateds certificate of incorporation to declassify its
board of directors. If this proposal is approved,
Federateds amended certificate of incorporation will
provide that beginning at the annual meeting in 2006, as current
terms expire, directors will be elected at each annual meeting
of Federated stockholders for a one-year term. Thus, if this
proposal is approved, present directors, including the directors
elected at the 2005 Federated annual meeting, would continue to
serve for their elected terms. By 2008, all directors would be
elected annually and would be serving one year terms.
The proposed amendment to Federateds certificate of
incorporation is attached to this joint proxy statement/
prospectus as Annex F and this discussion is qualified in
its entirety by such Annex. If the proposed amendment is
adopted, references to the existence of a classified board will
be deleted from Article Seventh of Federateds
certificate of incorporation. Article Seventh of
Federateds certificate of incorporation will be further
amended to set forth the procedure to phase in the annual
election of directors.
Federated stockholders have considered a proposal submitted by
Mrs. Evelyn Y. Davis, Editor, Highlights and Lowlights, to
declassify the Federated board of directors at six of the seven
most recent Federated annual meetings. At the 2004 annual
meeting, the proposal received a favorable vote of 87% of the
votes cast. Mrs. Davis submitted again a similar proposal
for consideration at the 2005 Federated annual meeting. Over the
past several years, Federateds board of directors,
management and outside advisors have, on numerous occasions,
considered the advantages, disadvantages and appropriateness of
having a classified board of directors. Federateds board
recognizes that Federated stockholders have consistently
provided majority support for proposals to declassify
Federateds board and that, in general, classified director
terms are opposed by a number of stockholder groups. In light of
the support for prior Federated declassification proposals, the
Federated board has determined to submit the proposal to a
binding vote and authorized Federateds management to reach
an agreement with Mrs. Davis providing for the withdrawal
of Mrs. Davis proposal in return for the Federated
boards submission of this proposal.
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Under the provisions of Federateds certificate of
incorporation the proposal to amend its certificate of
incorporation will require the affirmative vote of the holders
of at least a majority of the voting stock of Federated to take
effect in accordance with the schedule more fully described in
the proposal.
The Federated board of directors recommends that Federated
stockholders vote FOR the amendment to Federateds
certificate of incorporation, and your proxy will be so voted
unless you specify otherwise.
ITEM 4 RATIFICATION OF APPOINTMENT OF
INDEPENDENT
REGISTERED PUBLIC ACCOUNTING FIRM
The Audit Committee has appointed the firm of KPMG LLP, an
independent registered public accounting firm, to audit the
books, records and accounts of Federated for the fiscal year
ending January 28, 2006. The Audit Committees
appointment is subject to ratification by Federateds
stockholders. KPMG LLP and its predecessors have served as the
independent registered public accounting firm for Federated
since 1988, and are considered well qualified. Representatives
of KPMG LLP are expected to be present at the Federated annual
meeting and will have the opportunity to make a statement if
they desire to do so. It is also expected that they will be
available to respond to appropriate questions.
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Fees Paid to Independent Registered Public Accounting
Firm |
The table below summarizes the fees paid to KPMG LLP during
fiscal 2004 and fiscal year 2003:
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Year |
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Audit ($) | |
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Audit-Related ($) | |
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Tax ($) | |
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All Other ($) | |
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Total ($) | |
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2004
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3,723,000 |
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830,500 |
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309,747 |
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0 |
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4,863,247 |
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2003
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2,325,650 |
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787,400 |
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162,000 |
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69,000 |
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3,344,050 |
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Audit fees represent fees for professional services rendered for
the audit of Federateds annual financial statements, the
audit of Federateds internal control over financial
reporting and the reviews of the interim financial statements
included in Federateds Forms 10-Q.
Audit-related fees represent professional services principally
related to the audits of financial statements of employee
benefit plans, audits of financial statements of certain
subsidiaries and certain agreed upon procedures reports.
Tax fees represent professional services related to tax
compliance and consulting services, provided, however, that such
tax consulting services did not involve the provision of advice
regarding tax strategy or planning.
All other fees represent professional services other than those
covered above. Included in this are fees related to consulting
services specifically on one project in fiscal year 2003.
The Federated board of directors recommends that Federated
stockholders vote FOR the ratification of the appointment
of KPMG LLP, and your proxy will be so voted unless you specify
otherwise.
ITEM 5 APPROVE ADJOURNMENTS OR POSTPONEMENTS OF
THE ANNUAL MEETING, IF NECESSARY, TO PERMIT FURTHER SOLICITATION
OF PROXIES
Stockholders may be asked to vote on a proposal to adjourn or
postpone the annual meeting, if necessary, to permit further
solicitation of proxies if there are not sufficient votes at the
time of the annual meeting to approve the other proposals. See
the discussion regarding adjournments and postponements below in
Other Business; Adjournments and
Postponements on page 44.
The Federated board of directors recommends that Federated
stockholders, if necessary or appropriate, vote FOR the
proposal to adjourn or postpone the Federated annual meeting,
and your proxy will be so voted unless you specify otherwise.
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Voting by Federateds Directors and Executive
Officers
As of the record date for the Federated annual meeting,
Federateds directors and executive officers had the right
to vote approximately 422,587 shares of the then
outstanding Federated common stock at the Federated annual
meeting. As of the record date of the Federated annual meeting,
these shares represented less than 1% of the Federated common
stock outstanding and entitled to vote at the meeting.
Voting; Proxies
You may vote in person at the Federated annual meeting or by
proxy. We recommend you vote by proxy even if you plan to attend
the annual meeting. If you vote by proxy, you may change your
vote if you attend the annual meeting.
If you own common stock in your own name, you are an owner
of record. This means that you may use the enclosed proxy
card(s) to tell the persons named as proxies how to vote your
shares. If you properly complete, sign and date your proxy
card(s), or, if available, vote by telephone or over the
Internet, your proxy will be voted in accordance with your
instructions. The named proxies will vote all shares at the
meeting that have been properly voted (whether by Internet,
telephone or mail) and not revoked. If you sign and return your
proxy card(s) but do not mark your card(s) to tell the proxies
how to vote your shares on each proposal, your proxy will be
voted FOR each of the proposals presented.
If you hold shares of Federated common stock in a stock
brokerage account or through a bank, broker or other nominee,
or, in other words, in street name, please follow the voting
instructions provided by that entity. Also, see
Voting Shares Held in Street Name
beginning on page 41.
If you participate in Federateds Profit Sharing 401(k)
Investment Plan, you will receive a voting instruction card for
the common stock allocated to your accounts in that plan. You
may instruct the plan trustee on how to vote your proportional
interest in any Federated shares by signing, dating and mailing
the enclosed voting instruction card(s), or by submitting your
voting instructions by telephone or over the Internet. The plan
trustee will vote your proportional interest in accordance with
your instructions and the terms of the plan. If you fail to
vote, the trustee, subject to its fiduciary obligations under
ERISA, will vote your proportional interest in the same
proportion as it votes the proportional interests for which it
receives instructions from other plan participants. Under the
terms of the plan, the trustee must receive your voting
instructions by 5:00 p.m., Eastern Daylight Savings Time on
July 11, 2005.
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Voting Shares Held in Street Name |
Generally, a broker, bank or other nominee may only vote the
common stock that it holds in street name for you in accordance
with your instructions. However, if your broker, bank or other
nominee has not received your instructions, your broker, bank or
other nominee has the discretion to vote on certain matters that
are considered routine. A broker non-vote occurs if
your broker, bank or other nominee cannot vote on a particular
matter because your broker, bank or other nominee has not
received instructions from you and because the proposal is not
routine.
If you wish to vote on the proposal to issue Federated common
stock pursuant to the merger agreement, you must provide
instructions to your broker, bank or other nominee because this
proposal is not routine. If you do not provide your broker, bank
or other nominee with instructions, your broker, bank or other
nominee will not be authorized to vote with respect to the
issuance of Federated common stock, and a broker non-vote will
occur. Such a broker non-vote will not be counted for
determining whether the share issuance proposal has been
approved. However, broker non-votes can negatively affect the
vote on the Federated share issuance proposal if their failure
to be counted results in less than a majority of all outstanding
shares of Federated common stock being voted.
If you wish to vote on the proposal to amend Federateds
certificate of incorporation, you must provide instructions to
your broker, bank or other nominee because this proposal is not
routine. If you do not provide your broker, bank or other
nominee with instructions, your broker, bank or other nominee
will not be
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authorized to vote with respect to amending the certificate of
incorporation, and a broker non-vote will occur. This will have
the same effect as a vote against the amendment of the
certificate of incorporation.
If you wish to vote on the proposals to elect the three
Class II directors, to ratify the appointment of
Federateds independent registered public accounting firm
or to act upon any other routine business that may properly come
before the Federated annual meeting, you should provide
instructions to your broker, bank or other nominee. If you do
not provide your broker, bank or other nominee with
instructions, your broker, bank or other nominee generally will
have the authority to vote on the election of directors, the
ratification of the appointment of the independent registered
public accounting firm and other routine matters.
If you wish to vote on any proposal to approve adjournments or
postponements of the Federated annual meeting, you should
provide instructions to your broker, bank or other nominee. If
you do not provide instructions to your broker, bank or other
nominee, your broker, bank or other nominee generally will have
the authority to vote on proposals such as the adjournment or
postponement of meetings. However, your broker, bank or other
nominee will not be authorized to vote on any proposal to
adjourn or postpone the meeting solely relating to the
solicitation of proxies to approve the proposal to issue
Federated common stock pursuant to the merger agreement.
Your abstention from voting will have the following effects:
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Abstentions will not be counted for determining whether the
share issuance proposal has been approved. However, an
abstention can negatively affect the vote on the Federated share
issuance proposal if their failure to be counted results in less
than a majority of all outstanding shares of Federated common
stock being voted. |
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Abstentions will have the same effect as a vote against the
approval of the amendment to Federateds certificate of
incorporation. |
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Abstentions will not be counted for determining the election of
the board of directors. As a result, abstentions will not have
an effect on the outcome of the election of the board of
directors. |
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Abstentions will not be counted for the ratification of the
appointment of the independent registered public accounting firm. |
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Abstentions will not be counted for the approval of adjournments
or postponements of the Federated annual meeting. |
How to Vote
You have three voting options:
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Internet: You can vote over the Internet at the
Web address shown on your proxy card(s). Internet voting is
available 24 hours a day. If you vote over the Internet, do
not return your proxy card(s) or voting instruction card(s). |
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Telephone: You can vote by telephone by calling
the toll-free number on your proxy card(s) or voting instruction
card(s). Telephone voting is available 24 hours a day.
Easy-to-follow voice prompts allow you to vote your shares and
confirm that your instructions have been properly recorded. If
you vote by telephone, do not return your proxy card(s) or
voting instruction card(s). |
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Mail: You can vote by mail by simply signing,
dating and mailing your proxy card(s) or voting instruction
card(s) in the postage-paid envelope included with this joint
proxy statement/ prospectus. |
A number of banks and brokerage firms participate in a program
that also permits stockholders whose shares are held in street
name to direct their vote over the Internet or by telephone.
This option, if available, will be reflected in the voting
instructions from the bank or brokerage firm that accompany this
joint proxy statement/ prospectus. If your shares are held in an
account at a bank or brokerage firm that participates in
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such a program, you may direct the vote of these shares by the
Internet or telephone by following the voting instructions
enclosed with the proxy form from the bank or brokerage firm.
The Internet and telephone proxy procedures are designed to
authenticate stockholders identities, to allow
stockholders to give their proxy voting instructions and to
confirm that those instructions have been properly recorded.
Votes directed by the Internet or telephone through such a
program must be received by 5:00 p.m., Eastern Daylight
Savings Time, on July 12, 2005. Requesting a legal proxy
prior to the deadline described above will automatically cancel
any voting directions you have previously given by the Internet
or by telephone with respect to your shares. Directing the
voting of your shares will not affect your right to vote in
person if you decide to attend the Federated annual meeting;
however, you must first obtain a signed and properly executed
legal proxy from your bank, broker or other nominee to vote your
shares held in street name at your annual meeting.
Revoking Your Proxy
You can revoke your proxy at any time before its exercise by:
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sending a written notice to the Corporate Secretary of
Federated, at 7 West Seventh Street, Cincinnati, Ohio 45202,
bearing a date later than the date of the proxy that is received
prior to the Federated annual meeting and states that you revoke
your proxy; |
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voting again over the Internet or by telephone; |
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signing another proxy card(s) or voting instruction card(s)
bearing a later date and mailing it so that it is received prior
to the annual meeting; or |
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attending the annual meeting and voting in person, although
attendance at the annual meeting will not, by itself, revoke a
proxy. |
If your shares are held in street name by your broker, you will
need to contact your broker to revoke your proxy.
Other Voting Matters
If you plan to attend the Federated annual meeting and wish to
vote in person, we will give you a ballot at the annual meeting.
However, if your shares are held in street name, you must first
obtain a legal proxy authorizing you to vote the shares in
person, which you must bring with you to the annual meeting.
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Electronic Access to Proxy Material |
This joint proxy statement/ prospectus and Federateds 2004
Form 10-K for the fiscal year ending January 29, 2005,
are available on our Internet site at
www.fds.com/corporategovernance.
We can provide you with reasonable assistance to help you
participate in the annual meeting if you tell us about your
disability and how you plan to attend. Please call or write to
Federateds Corporate Secretary at 7 West Seventh
Street, Cincinnati, Ohio 45202, (513) 579-7000, at least
two weeks before your annual meeting.
Proxy Solicitations
Federated is soliciting proxies for the Federated annual meeting
from Federated stockholders. Federated will bear the entire cost
of soliciting proxies from Federated stockholders, except that
Federated and May will share equally the expenses incurred in
connection with the filing of the registration statement of
which this joint proxy statement/ prospectus forms a part with
the SEC and the printing and mailing of this joint proxy
statement/ prospectus. In addition to this mailing,
Federateds directors, officers and employees (who will not
receive any additional compensation for their services) may
solicit proxies personally, electronically or by
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telephone. Federated has also engaged Georgeson Shareholder
Communications, Inc. for a fee of approximately $25,000 plus
reimbursement of expenses to assist in the solicitation of
proxies. Federated and its proxy solicitors will also request
that banks, brokerage houses and other custodians, nominees and
fiduciaries send proxy materials to the beneficial owners of
Federated common stock and will, if requested, reimburse the
record holders for their reasonable out-of-pocket expenses in
doing so. The extent to which these proxy-soliciting efforts
will be necessary depends upon how promptly proxies are
submitted. You should promptly vote by telephone or over the
Internet or submit your completed proxy card(s) without delay by
mail.
Other Business; Adjournments or Postponements
We are not aware of any other business to be acted upon at the
annual meeting. If, however, other matters are properly brought
before the annual meeting, your proxies will have discretion to
vote or act on those matters according to their best judgment.
Any adjournment may be made from time to time by approval of
the stockholders holding a majority of the voting power present
in person or by proxy at the annual meeting, whether or not a
quorum exists, without further notice other than by an
announcement made at the annual meeting. In addition, if the
adjournment of the annual meeting is for more than 30 days
or if after the adjournment a new record date is fixed for an
adjourned meeting, notice of the adjourned meeting must be given
to each stockholder of record entitled to vote at such annual
meeting. If a quorum is not present at the annual meeting,
stockholders may be asked to vote on a proposal to adjourn or
postpone the annual meeting to solicit additional proxies. If a
quorum is not present at the annual meeting, the holders of a
majority of the shares entitled to vote who are present in
person or by proxy may adjourn or postpone the annual meeting.
If a quorum is present at the annual meeting but there are not
sufficient votes at the time of the annual meeting to approve
the other proposal(s), holders of common stock may also be asked
to vote on a proposal to approve the adjournment or postponement
of the annual meeting to permit further solicitation of
proxies.
Assistance
If you need assistance in completing your proxy card or have
questions regarding Federateds annual meeting, please
contact Federateds Investor Relations at
(513) 579-7780 or write to Federated Department Stores,
Inc., 7 West Seventh Street Cincinnati, Ohio 45202, Attention:
Investor Relations.
THE MERGER
Background of the Merger
Growth through acquisitions has been one of the hallmarks of
Federateds business strategy since Federated was born
through the combination of Abraham & Straus of
Brooklyn, Filenes of Boston, F&R Lazarus &
Co. of Columbus, Ohio and Bloomingdales of New York on
March 6, 1929. Since that time, Federated has considered a
number of possible acquisition candidates, including,
periodically over the past two decades, May.
In 1988, May and Federated discussed the possibility of
Mays acquiring Federated, but did not reach agreement on a
transaction. However, in conjunction with another transaction by
Federated that year, May did acquire two divisions then owned by
Federated Foleys and Filenes.
In the more recent past, the two companies have twice discussed
the possibility of a stock-for-stock merger of
equals once in 1999 and again in 2002. In each case,
the two companies entered into a confidentiality agreement,
provided one another with the opportunity for due diligence and
discussed how such a transaction might be structured. Neither
discussion reached the stage of a possible agreement either on
the economics of an exchange ratio or the structure of a
transaction and the post-transaction governance arrangements.
On December 9, 2004, Federateds management and
Goldman Sachs, financial advisors to Federated, met with
Federateds board to discuss its options in response to
industry trends facing Federated, which
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included a possible business combination with May, and
structural governance and other issues to be considered in an
acquisition of May. During the course of the December 9,
2004 meeting, Federateds management indicated to
Federateds board that it intended to perform additional
reviews and analyses regarding a possible business combination
with May. On January 11, 2005, Federateds management
updated Federateds board telephonically and reported on
the results of the additional analytical work undertaken by
Federateds management regarding a possible business
combination with May. At the close of managements
presentation, Federateds board authorized management to
approach May regarding a possible business combination with May.
Later in the day on January 11, 2005, Terry J. Lundgren,
chairman of the board, president and chief executive officer of
Federated, called Eugene S. Kahn, then chairman of the board and
chief executive officer of May, to propose discussion of a
business combination between Federated and May in which
Federated would be the surviving company. No specifics were
discussed on this call. Mr. Lundgren and Mr. Kahn
agreed to meet shortly thereafter to explore the possibility of
such a business combination in detail.
On January 14, 2005, May announced Mr. Kahns
resignation as chairman and chief executive officer of May,
which Mr. Kahn had tendered earlier that day. May also said
John L. Dunham, president of May, had been named by the board of
directors as acting chairman and chief executive officer in
addition to his duties as president, and that the board would
immediately begin a search to fill the chief executive officer
position. At its meeting that day the board elected Russell E.
Palmer as lead director and designated James M. Kilts as the
chairman of the CEO search committee. The board noted the
pending appointment between Mr. Kahn and Mr. Lundgren
and suggested Mr. Dunham should let Mr. Lundgren call
again to renew his request for a meeting. The board authorized
Mr. Dunham to meet with Mr. Lundgren if
Mr. Lundgren asked, and generally authorized management
under Mr. Dunhams leadership to discuss a possible
business combination with Federated if the occasion arose. The
board also designated Mr. William Stiritz to participate in
such discussions on behalf of the board, as appropriate, if they
were to occur.
On January 17, 2005, Mr. Lundgren telephoned
Mr. Dunham and suggested they meet so that
Mr. Lundgren could share with Mr. Dunham his vision of
a combined Federated-May. They also discussed whether to include
their respective financial advisors in the meeting.
On January 18, 2005, Mr. Lundgren called
Mr. Dunham and proposed that he and Mr. Ronald W.
Tysoe, vice chair, finance and real estate of Federated, would
come to St. Louis the next Tuesday or Wednesday (January 25
or 26). Mr. Dunham said he would consider this proposal and
call Mr. Lundgren back with an answer.
On January 20, 2005, Mr. Dunham called
Mr. Lundgren. He described generally what kinds of things
May was working on and specifically said the board was pursuing
a search for a new CEO. He said Mays board and its
management were extremely concerned with the rumors in the
market regarding a potential transaction between the two
companies that were distracting for everyone and a disruption
for Mays business. He informed Mr. Lundgren of the
special role conferred on Mr. Stiritz in connection with
any business combination discussions. Acknowledging the pendency
of the meeting request on behalf of Mr. Lundgren,
Mr. Dunham suggested that Morgan Stanley and Goldman Sachs
should meet before the company representatives did.
Mr. Lundgren agreed to this suggestion.
The following day a representative of Morgan Stanley met with a
representative of Goldman Sachs. They discussed shareholder
value, the fact that Federated considered this transaction an
acquisition of May rather than a merger-of-equals and that
Federated could move very quickly to a definitive agreement. In
addition, Goldman Sachs reiterated Mr. Lundgrens
request for a meeting of senior executives of both companies in
St. Louis and specifically suggested it occur on Wednesday,
January 26. The meeting took place on January 26, 2005. May
was represented by Mr. Dunham and Mr. William P.
McNamara, vice chairman. Federated was represented by
Mr. Lundgren, Mr. Thomas G. Cody, vice chair, and
Mr. Tysoe. Morgan Stanley and Goldman Sachs also attended.
Mr. Lundgren described his vision for a combined
Federated-May, namely creating the premier fashion retailer in
the United States. Mr. Lundgren expressed his interest in
retaining Mays associates, having a divisional
headquarters in St. Louis as well as a regional corporate
presence and incorporating best practices from both companies.
He said Federated was willing to move
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quickly toward executing a definitive agreement and would make a
strong contractual commitment to complete the deal.
Mr. Lundgren did not discuss price, but said Federated
wished to acquire all outstanding shares of May in exchange for
a combination of cash and Federated common stock.
Mr. Dunham emphasized he was not in a position to negotiate
a transaction or to discuss price. He said he and Mays
management would discuss the matter with the board, and if there
were interest in pursuing a transaction, the two companies would
need to enter into an appropriate confidentiality agreement.
Concurrently on January 26, Morgan Stanley met separately
with Goldman Sachs. They discussed in general terms the
structure of a possible transaction, Federateds
willingness to undertake a strong contractual commitment to
close the transaction, Federateds intention to increase
the post-closing annual dividend to $1.00 per share and the
possibility of May designating two of its board members to the
Federated board. In addition, Goldman Sachs conveyed
Federateds belief that due diligence could be completed
very quickly.
On the morning of January 31, 2005, May held a previously
scheduled board meeting. Management gave the board a general
update on January sales and a status report on the integration
of Marshall Fields. Following that discussion,
representatives of Morgan Stanley joined the meeting. They and
May management reported to the board on the prior weeks
meeting with Federated and informed the board that
Mr. Lundgren had called Mr. Dunham to tell him
Federateds board would be meeting later in the day and he
would then be sending a letter to the attention of
Mr. Stiritz and Mr. Dunham.
On the afternoon of January 31, 2005, the Federated board
met to receive an update from management and Goldman Sachs on
the discussions with May, and authorized management to make a
formal offer to May. Following the board meeting, Federated
delivered a letter to the board of directors of May
communicating Federateds proposal to acquire May. Quoting
directly from the letter, the specific elements of the
proposal consisted of the following:
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Based on the information currently available to us, Federated is
prepared to offer $33.25 per share for all the outstanding
common stock of May. This price represents a premium of
approximately 20% to both the closing price of Mays stock
on January 13, 2005 and to the 3-year average price prior
to that date. We are contemplating a cash and stock transaction
involving 40% cash and 60% stock, assuming a fixed number of
Federated shares. |
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Our projected financial plan anticipates raising the current
Federated dividend significantly to $1.00 per share after
closing. |
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The capital structure of the new company contemplates that there
will be significant share repurchases in the future, while at
the same time preserving the companys investment grade
rating. |
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In order to ensure that there is some continuity of the May
perspective in the boardroom, we are willing to discuss adding
two existing May directors to the Federated Board should there
be an interest in doing so. |
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The Federated Board of Directors has been fully briefed on this
proposal and is very excited about the prospect of putting our
two companies together. We are prepared to act quickly to
execute a definitive agreement and consummate a transaction as
soon as possible. Our team and advisors are available to
complete our due diligence immediately. As we explained to [Mr.
Dunham and Mr. McNamara] last week, we do not anticipate
any delays in our ability to expeditiously complete a
transaction and we are prepared to provide your Board with a
strong contractual commitment to close the acquisition. |
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This proposal should be considered non-binding and is subject
to, among other things, the satisfactory completion of our due
diligence and the negotiation and execution of a mutually
satisfactory merger agreement. We would expect the definitive
documentation to contain customary representations and
warranties, closing conditions and no-shop and deal protection
provisions. |
The May board met briefly in the afternoon on February 1,
2005, to review and discuss the proposal letter from Federated
and to consider whether and how best to proceed with further
discussions with Federated. The May board reconvened on
February 2, 2005, and again on February 3, 2005, to
discuss Federateds proposal to acquire May, as well as
whether and how to proceed. Among other considerations, the
board believed it was
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necessary to reinstate a version of the confidentiality
agreement that May and Federated had had in place for the 2002
merger of equals discussions, which had expired. Particular
consideration was given to the question whether such agreement
should as had been the case in the 2002
agreement include a mutual standstill
agreement preventing unsolicited tender offers or acquisition
proposals by either side. At the conclusion of the February 3
meeting the board authorized May management and legal counsel to
negotiate a confidentiality agreement, appropriate in the
circumstances, to permit the companies to exchange confidential
financial information as part of a bilateral due diligence. The
board also authorized Morgan Stanley to communicate to Goldman
Sachs on behalf of Federated that the board had rejected
Federateds proposal. On the evening of February 3,
2005, legal counsel for May and Federated discussed, negotiated
and agreed on the form of confidentiality agreement they could
recommend respectively to May and Federated.
On Friday, February 4, 2005, Federated and May signed a
confidentiality agreement which contained standstill obligations
on the parties for a period of 18 months, subject to
certain specified exceptions. Also on February 4, 2005, May
and Federated convened a due diligence conference call that
included Mr. Dunham and Mr. Thomas D. Fingleton,
Mays executive vice president and chief financial officer,
Mr. Thomas G. Cody, Mr. Tysoe and Ms. Karen
M. Hoguet, Federateds chief financial officer, as well as
representatives of Morgan Stanley and Goldman Sachs.
The Federated board met on February 5, 2005. At this board
meeting, Goldman Sachs presented a preliminary analysis of a
Federated-May combination. In addition, legal counsel to
Federated discussed the boards fiduciary duties in the
context of an acquisition transaction.
Between February 5, 2005, and February 7, 2005,
representatives of Goldman Sachs and Morgan Stanley were in
frequent communication, discussing a variety of issues relating
to how a possible transaction might be structured, what type of
additional information and due diligence was needed to make
progress and how to price the transaction. In the latter regard,
Morgan Stanley informed Goldman Sachs the May board had rejected
the proposal in Federateds January 31 letter because,
among other reasons, the price was not high enough and needed to
be increased substantially.
On February 7, 2005, Federated delivered a second letter to
the May board communicating a revised proposal. The operative
paragraphs of that letter read as follows:
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Federated is prepared to increase its offer by $1.00 to
$34.25 per share. In an effort to pay our best price, we
are also shifting the mix of consideration to 50% cash and 50%
stock. In light of Morgan Stanleys clear guidance that the
upfront purchase price is a priority for May directors, this
change was necessary to deliver maximum value to your
shareholders. As we indicated in our letter of January 31,
2005, we are contemplating offering a unit to Mays
shareholders made up of cash and stock and the number of
Federated shares will be fixed upon acceptance of this proposal. |
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I want to emphasize to you that in formulating this revised
offer we are putting our best foot forward. The
price of 34.25 per share represents a premium in excess of
23% to the closing price of Mays stock on January 13,
2005 and it represents an attractive premium to Mays one,
three and five year average stock price. In addition, I want to
reiterate that we are prepared to enter into a definitive merger
agreement quickly, and we are willing to provide your Board with
a strong contractual commitment to close. |
On February 9, 2005, the May board met to consider
Federateds revised proposal. Management presented a
comparison of expected performance and related results in two
basic scenarios one scenario contemplating
Mays continuing as an independent company and the second
scenario contemplating Federateds acquisition of May.
After considering managements presentation and receipt of
advice from its independent advisors, the board concluded the
acquisition proposal from Federated would be unlikely to produce
value for stockholders superior to the value expected in the
independent company scenario, taking into account the risks and
uncertainties associated with each scenario. Accordingly, the
board rejected the Federated proposal and authorized management
and Mr. Stiritz to seek a higher price.
On February 10, 2005, Messrs. Stiritz and Dunham
called Messrs. Lundgren and Tysoe to convey the May
boards message that the $34.25 price per share was not
adequate and had been rejected by the board.
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Messrs. Stiritz and Dunham also informed
Messrs. Lundgren and Tysoe that the May board had
authorized them to state that the May board would be willing to
entertain favorably, subject to contract terms and conditions, a
proposal from Federated that would equal or exceed a value of
$36 per May share, keeping the consideration split at 50%
cash and 50% Federated common stock. Mr. Lundgren replied
that Federated would not pay $36 per share for Mays
outstanding common stock and that, in view of the May
boards position, there would be no further discussions
because they could serve no purpose.
On February 14, 2005, the May board met for an update
concerning discussions with Federated. The board was informed
that Federated had rejected Mays $36.00 per share
proposal and had said the negotiations were over. The board
reconsidered and reconfirmed the position it had adopted at its
February 9 meeting and instructed Morgan Stanley to refrain from
further discussions with Goldman Sachs or Federated. The board
also instructed management to pursue the strategic plan for
remaining independent presented to the board at the February 9
meeting and advised that the search for a new CEO would continue.
On February 16, 2005, the Federated board met
telephonically to receive an update from management and Goldman
Sachs on discussions with May, and authorized management to
increase the offer price for May.
On February 17, 2005, Federated sent a letter to the May
board proposing to reconvene the discussions between the two
companies on a revised basis. The text of the letter was as
follows:
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I am writing to convey the terms of a revised and final proposal
whereby Federated would acquire all of the common stock of May. |
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Federated is prepared to increase its offer by $1.00 to
$35.25 per share in a transaction comprised of 50% cash and
50% stock. As indicated in our letter of February 7, 2005,
we are offering May shareholders consideration in the form of a
unit made up of cash and stock where the number of Federated
shares will be fixed based on our closing price of $57.39 on
February 16, 2005.(1) |
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I believe both our companies need to promptly resolve the matter
of the potential merger. The leaks and rumors about a possible
transaction have been damaging to both Federated and May. Under
the circumstances, we are prepared to immediately commence our
due diligence and simultaneously negotiate a definitive merger
agreement. If at all possible, it would be our intention to
announce a transaction concurrent with the release of our year
end financials on Tuesday, February 22, 2005. Therefore, in
the spirit of trying to bring our respective efforts to
negotiate a transaction to a swift conclusion, this proposal
will remain open until 12:00 noon (EST) on Friday,
February 18, 2005. |
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I look forward to hearing back from you as soon as possible. |
Later on February 17, 2005, after consultation with Morgan
Stanley and Skadden Arps, legal counsel to May, on the subject
of the letter, Mr. Stiritz and Mr. Dunham called
Mr. Lundgren. They told him May would not be able to meet
the one-day deadline set in the letter, among other reasons
because it would be necessary to convene an in-person board
meeting to respond. They also told him May was prepared to begin
working on a draft merger agreement but that the May board would
only negotiate price if the parties could agree on a mutually
acceptable form of merger agreement and could complete all their
due diligence inquiries. They specifically expressed doubt that
the $35.25 price proposed would be acceptable to the May board.
Finally, they said they did not think the February 22 target for
an announcement was realistic. On February 18, 2005,
Mr. Tysoe called Mr. Dunham to tell him May would
shortly receive a draft merger agreement which he thought could
be fully negotiated to the parties mutual satisfaction in
a very short time. Later the same day Federateds legal
counsel distributed a draft merger agreement to May and its
legal counsel.
Between February 19, 2005 and February 23, 2005,
Federated and May, together with their legal and financial
advisors, conducted reciprocal business and legal due diligence.
On February 23, 2005, May retained
(1) The computation implied by this proposal
(50% × $35.25 = $17.63 and
$17.63/$57.39 = 0.3072) resulted in a price of $17.63
in cash and 0.3072 shares of Federated common stock for
each share of May common stock.
48
Peter J. Solomon Company as an additional financial advisor in
connection with the possible business combination transaction
with Federated. May retained Peter J. Solomon Company because of
its qualifications, reputation and experience, particularly its
expertise as a financial advisor in the retail sector, and
because, in light of the extraordinary nature and significance
of the proposed transaction to May and the size and complexity
of the proposed transaction, the May board of directors believed
May and its stockholders would benefit from Peter J. Solomon
Companys advice. That day, counsel to May distributed a
revised draft of the merger agreement to Federated and its
counsel.
During the week of February 21, 2005, Mr. Lundgren
called Mr. Stiritz on one or two occasions and they
discussed the progress of the negotiations.
On February 24, 2005, representatives of May and its legal
counsel held a telephonic meeting with representatives of
Federated and its legal counsel to discuss Mays comments
on the draft merger agreement. Many issues were resolved as a
result of that conversation. Issues that remained open included
the language regarding the parties obligations to obtain
governmental approvals, conditions, termination events and
related termination fee triggers, various issues relating to how
all May associates would be treated in the merger and thereafter
and how the merger would affect various May employee benefit
programs. The principal focus of these discussions for May was
minimizing the risk of non-consummation of the merger because of
regulatory or other obstacles.
Between February 24, 2005, and February 27, 2005,
representatives of May and its legal counsel continued to
negotiate with representatives of Federated and its legal
counsel over the remaining issues to the merger agreement. The
significant open issues that remained were the size of the break
up fees each party would pay to the other and the language
regarding the parties obligations to obtain governmental
approvals and the consequences attendant upon a failure to do
so. Concurrently with such negotiations, the parties continued
their respective due diligence reviews.
On February 25, 2005, the Federated board convened a
regularly scheduled meeting. At this meeting, the Federated
board reviewed with Federateds management and legal and
financial advisors the status of negotiations with May and the
proposed terms and conditions of the merger. During this
meeting, Federateds management also reviewed the results
of its due diligence investigation. Federateds outside
legal counsel reviewed the material terms and conditions of the
merger agreement, as reflected in the then current draft, the
legal duties and responsibilities of the Federated board in
connection with the proposed merger, and the legal risk profile
of a combination with May. Federateds financial advisor
reviewed its financial analysis of the proposed merger and
indicated that it was prepared to deliver to the Federated board
an opinion to the effect that, as of that date and based upon
and subject to the factors and assumptions set forth in its
opinion, the consideration to be paid for each share of May was
fair, from a financial point of view, to Federated. The
Federated board carefully considered the benefits and risks of a
merger with May to Federated and its stockholders, and following
a thorough discussion, authorized management to continue
negotiations with May on the terms discussed at the meeting.
On the morning of February 26, 2005, May convened its
board. At the meeting, the May board reviewed with Mays
management and legal and financial advisors the status of
negotiations with Federated and the proposed terms and
conditions of the merger. During this meeting, Mays
management also reviewed the results of its due diligence
investigation. Mays outside accountants,
Deloitte & Touche, made a presentation and answered
questions concerning their due diligence investigation of
Federated. Mays outside legal counsel reviewed the
material terms and conditions of the merger agreement, as
reflected in the then current draft. Substantial discussion was
devoted to the provisions relating to the risk of
non-consummation of the merger once it had been agreed and
announced and to the provisions still at issue
including circumstances in which May could negotiate with a
competing bidder, circumstances in which May could terminate the
agreement to accept a better offer, the terms applicable to such
circumstances, including payment of termination fees and the
amounts thereof, and provisions governing the circumstances if
the merger were the subject of opposition from state or federal
antitrust regulators and the amount of a reverse
termination fee that would be payable if Federated terminated
the merger agreement by reason of such opposition. The May board
also received and discussed both financial and tactical advice
from Morgan Stanley, and tactical advice from Skadden Arps,
49
concerning whether and how to attempt to negotiate an
improvement in Federateds proposed merger price. The May
board carefully considered the benefits and risks potentially
accruing to May and its stockholders as a result of a merger
with Federated and following a thorough discussion, gave
negotiating instructions with respect to the open issues in the
merger agreement and authorized Morgan Stanley to communicate
with Goldman Sachs seeking an increase in the merger
consideration.
Later on February 26, 2005, Morgan Stanley informed Goldman
Sachs that the board was divided on the question of price and
that if Federated did not increase its price to a current value
of $36 per share there was no assurance of a favorable May
response and a unanimously favorable board response could be
unlikely. The question of current value was based on whether the
computation of the 50% Federated common stock portion of the
consideration would be calculated on the Friday,
February 25th
closing market price of $56.79 or would remain fixed at the
February 16th closing price of 57.39 which, because of the
decline in stock price, diminished the current value of the
common stock portion of the consideration. Morgan Stanley also
communicated certain other information about the boards
position on other contractual issues. Later that evening
(February 26), R. Dean Wolfe, executive vice president of May,
and Alan E. Charlson, senior vice president and general counsel
of May, spoke with Mr. Tysoe and Dennis R. Broderick,
senior vice president, general counsel and secretary of
Federated, on the subject of Federateds contractual
obligations relating to obtaining antitrust clearance and the
consequences attendant upon a failure to receive such clearance.
As a result of that conversation, legal counsel for Federated
and legal counsel for May worked out mutually acceptable
contractual language to implement the principles discussed in
the earlier conversation.
On the morning of February 27, 2005, Mr. Stiritz
called Mr. Lundgren to reiterate that the May board was
divided on the question of price. He encouraged
Mr. Lundgren to increase Federateds price to
$36 per May share and to compute the 50% common stock
portion of the consideration using Federateds
February 25th
closing price of $56.79. He also stressed the importance of
Federateds making the strongest possible contractual
commitment to obtain the necessary antitrust clearance and the
related importance of the termination fee payable if the merger
did not close because such clearance was not received.
Later in the morning of February 27, 2005, Federated
reconvened its directors meeting to consider Mays request
to increase Federateds offer to $36 per May share. At
this meeting, management of Federated asked the Federated board
for authority to offer up to $35.50 per May share,
comprised of $17.75 in cash and 0.3115 shares of Federated
common stock per May share, the stock component of which was
equal to $17.75 based on the average of the closing prices for
Federateds common stock for the ten trading days ended
Friday, February 25, 2005 (which was $56.99 per
Federated share). Management also asked for authority to pay up
to a $350 million termination fee to May in certain
circumstances and to make certain commitments with respect to
obtaining government approval of the transaction. Legal counsel
to Federated then reviewed again with the Federated board the
legal risk profile of the proposed combination and the changes
that had been made to the merger agreement since the
boards February 25, 2005 meeting. Representatives of
Goldman Sachs then recapped the negotiations that had taken
place with their counterparts at Morgan Stanley since Mays
board meeting had adjourned the day before and delivered its
opinion that, as of February 27, 2005, and based on and
subject to the factors and assumptions set forth in its opinion,
the consideration to be paid for each share of May was fair,
from a financial point of view, to Federated. Following a
thorough discussion, the Federated board determined that the
merger was in the best interests of the stockholders of
Federated and, subject to Mays approval and the
satisfactory negotiation of all open issues, approved the merger
and the merger agreement, resolved to recommend that
stockholders of Federated vote to approve the issuance of
Federated common stock in the merger, and authorized its
executive officers to execute and deliver the merger agreement.
On the afternoon on February 27, 2005, May reconvened its
board to consider Federateds latest proposal. The May
board received a report of the final negotiations of the form of
the merger agreement from its legal counsel, including in
particular the contractual obligations, conditions and
termination rights relating to obtaining regulatory approvals,
payment of a reverse termination fee by Federated if
the merger was not consummated due to antitrust regulatory
opposition, as well as the provisions and termination fees
applicable in situations in which the transaction were made the
subject of competitive bids from third parties or in which
either board withdrew its recommendation of the merger. The
board also received the opinions of Mor-
50
gan Stanley and Peter J. Solomon Company with respect to
the fairness from a financial point of view of the consideration
to be paid by Federated in the merger to May stockholders, as
well as presentations explaining the assumptions, methodologies
and bases for such opinions. Following a thorough discussion,
the May board unanimously (with one abstention) determined that
the merger was in the best interests of the May stockholders and
approved the merger and the merger agreement, resolved to
recommend that May stockholders vote to approve the merger, and
authorized its executive officers to execute and deliver the
merger agreement.
On the evening of February 27, 2005, the parties executed
and delivered the merger agreement. Prior to the commencement of
trading on February 28, 2005, Federated and May issued a
joint press release announcing the execution and delivery of the
merger agreement.
Mays Reasons for the Merger and Recommendation of
Mays Board of Directors
The May board of directors believes that the merger agreement
and the transactions contemplated by the merger agreement,
including the merger, are advisable and fair to and in the best
interests of May and its stockholders. Accordingly, the May
board of directors has approved the merger agreement and the
transactions contemplated by the merger agreement, including the
merger, and recommends that May stockholders vote FOR
approval and adoption of the merger agreement and the
transactions contemplated by the merger agreement, including the
merger.
As described above under Background of the
Merger, the May board of directors, prior to and in
reaching its decision at its meeting on February 27, 2005,
to approve and adopt the merger agreement and the transactions
contemplated by the merger agreement, including the merger,
consulted on numerous occasions with Mays senior executive
officers and Mays financial and legal advisors and
considered a variety of factors weighing positively in favor of
the merger, including, without limitation, the following:
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the strategic nature of the transaction, which will combine
Mays and Federateds respective businesses to create
one of the largest national retail store chains in the United
States, with pro forma combined sales expected to exceed
$30 billion, all of which should provide the combined
company with a strong foundation for improved performance; |
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the May board of directors analysis and understanding of
managements stand-alone plans for May in the
context of the increasingly competitive conditions in the retail
industry generally, including pressures from both discount and
high-end retailers, and the boards analysis of the
business, operations, financial performance, financial
condition, earnings and prospects of May on a stand-alone basis,
particularly in view of Mays recent financial performance
in comparison to Mays peers, and the boards belief,
based on its analysis and understanding, that the combined
company, with its greater size and scale, would be better
positioned to succeed in light of the risks and potential
rewards associated with May continuing to operate on a
stand-alone basis and other alternatives reasonably available to
May, including growth through acquisition of assets or other
companies and disposition of non-strategic assets; |
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the value to be received by holders of May common stock in the
merger, including the fact that, based on the closing price of
Mays common stock on January 14, 2005 (the last full
trading day before the announcement of the resignation of
Chairman and CEO Gene Kahn and rumors of a possible business
combination transaction between May and Federated were reported
by several national news organizations), the value of the merger
consideration represented: |
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a premium of approximately 27.5% over the closing price of May
common stock on the NYSE on January 14, 2005; |
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a premium of approximately 23.7%, 35.5% and 24.3% over the
median closing price of May common stock on the NYSE for the
thirty-day, six-month and twelve-month trading periods,
respectively, ending with January 14, 2005; |
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the fact that the initial 50/50 split of stock and cash in the
merger consideration affords May stockholders both the
opportunity to participate in the growth and opportunities of
the combined company through the stock component of the merger
consideration and to receive cash for the value of their shares
through the cash component of the merger consideration; |
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the fact that May stockholders as a group will own, on a
fully-diluted basis, approximately 35% of the outstanding
Federated common stock immediately following the merger; |
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because the stock portion of the merger consideration is a fixed
number of shares of Federated common stock, the opportunity for
May stockholders to benefit from any increase in the trading
price of Federated common stock between the announcement of the
merger and the completion of the merger, as well as any increase
after completion of the merger; |
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the fact the Federated agreed to increase its quarterly dividend
to $0.25 following completion of the merger; |
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the May board of directors understanding of the historical
information concerning Mays and Federateds
respective businesses, financial performance and condition,
operations, management, competitive positions, prospects and
stock performance, including the report of Mays management
on the results of Mays due diligence review of Federated
and its assets, liabilities, financial condition, business and
prospects, which confirmed the otherwise publicly available
information regarding Federated, confirmed the positive view of
Federateds business, was consistent with the boards
expectations regarding potential operating efficiencies and cost
savings reasonably available as a result of the merger and
supported the boards determination that the combined
company should have a strong foundation for growth and improved
performance; |
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anticipated cost savings and operating synergies available to
the combined company from the merger through consolidation of
central functions, division integrations and the continuation
across the combined company of the best practices and traditions
of May and Federated following completion of the merger which is
expected to positively enhance the combined companys
earnings and create value for stockholders; |
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the potential ability of the combined company to maintain and
strengthen relationships with a broader base of suppliers and
mall operators through improved operational efficiencies in such
areas as marketing and supply chain management; |
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the fact that the business combination with Federated provides
the combined company with additional unique and differentiated
products that should enable the combined company to better
differentiate itself from other retailers and expand the points
of distribution for its private labels in key geographic areas; |
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Morgan Stanleys opinion described in the section entitled
Opinions of Mays Financial
Advisors beginning on page 57, including its analysis
rendered orally on and confirmed in writing as of
February 27, 2005, to the effect that, as of
February 27, 2005, and based on and subject to various
assumptions made, matters considered and limitations described
in its written opinion, the consideration proposed to be
received by holders of May common stock in the merger agreement
was fair, from a financial point of view, to such holders; |
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Peter J. Solomon Companys opinion described in the section
entitled Opinions of Mays Financial
Advisors beginning on page 57, including its analysis
rendered orally on and confirmed in writing as of
February 27, 2005, to the effect that, as of
February 27, 2005, and based on and subject to various
assumptions made, matters considered and limitations described
in its written opinion, the consideration proposed to be
received by holders of May common stock in the merger was fair,
from a financial point of view, to such holders; |
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the fact that the May board of directors had not received any
indications of interest from other parties regarding a potential
business combination despite public speculation and commentary
regarding a potential business combination transaction involving
May; |
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the fact that May stockholders who dissent from the merger will
have appraisal rights, as described in the section entitled
Appraisal Rights of May Stockholders
beginning on page 88; |
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the expected qualification of the merger as a reorganization
within the meaning of Section 368(a) of the Internal
Revenue Code, resulting in the common stock portion of the
merger consideration to be received by May stockholders not
being subject to federal income tax, as described in the section
entitled Material United States Federal Income Tax
Consequences beginning on page 92; |
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the May boards belief, in light of the commitments made by
Federated in the merger agreement, that, based on available
information, the transaction should not present an unacceptable
risk of non-consummation due to antitrust concerns; and |
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the terms and conditions of the merger agreement, including: |
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the fact that the terms of the merger agreement provide that,
under certain circumstances, and subject to certain conditions
more fully described in the section entitled The Merger
Agreement Covenants and Agreements No
Solicitation by May beginning on page 104, May can
furnish information to and conduct negotiations with a third
party in connection with an unsolicited proposal for a business
combination or acquisition of May that is likely to lead to a
superior proposal and the May board of directors can terminate
the merger agreement for a superior proposal or change its
recommendation prior to stockholder approval of the merger
agreement; |
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the fact that there are limited circumstances in which the board
of directors of Federated may change or modify its
recommendation to its stockholders to approve the issuance of
shares of Federated common stock in the merger, and that
Federated agreed to pay a termination fee of $350 million
to May in the event that the board of directors of Federated
changes or modifies its recommendation, as described in the
section entitled The Merger Agreement
Termination Fees beginning on page 114; |
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the fact that Federated agreed to pay a termination fee to May
ranging from $150 million to $350 million in the event
that the merger agreement is terminated due to a failure to
obtain necessary antitrust clearance; |
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the fact that the completion of the merger is not conditioned on
Federateds obtaining financing; |
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the fact that the conditions required to be satisfied prior to
completion of the merger are customary and can be expected to be
fulfilled in the ordinary course and the corresponding
likelihood that the merger will be consummated; |
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the fact that two members of the May board of directors are
expected to be appointed to the Federated board of directors,
which is expected to provide a degree of continuity and
involvement by May directors in the combined company following
the merger; |
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the fact that Federated agreed to continue all of Mays
employee benefit plans in accordance with their terms in effect
immediately prior to the effective time of the merger for one
year after the merger and, for the second and third years after
the merger, Federated agreed to provide a substantially
comparable level of compensation and employee benefits
(excluding equity-based awards) to all continuing May employees
(other than those subject to collective bargaining obligations
or agreements); |
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the fact that Federated agreed to maintain a major division
headquarters, as well as certain regional corporate support
functions, in St. Louis, which the May board of directors
considered important in light of Mays importance to the
St. Louis area and the effect on employees; and |
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the fact that Federated agreed to honor Mays existing
charitable contribution commitments and fund future charitable
contributions (subject to certain agreed parameters). |
53
In addition to these factors, the May board of directors also
considered the potential adverse impact of other factors
weighing negatively against the proposed transaction, including,
without limitation, the following:
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the risk that, notwithstanding the likelihood of the
mergers being completed, the merger might not be
completed, including the effect of the pendency of the merger
and such failure to be completed may have on: |
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the trading price of May common stock; |
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Mays operating results, including the costs incurred in
connection with the transaction; |
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Mays ability to attract and retain key personnel; and |
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Mays ability to retain customers and maintain sales; |
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the possibility of significant costs and delays resulting from
seeking antitrust clearance necessary for completion of the
proposed merger; |
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because the stock portion of the merger consideration is a fixed
number of shares of Federated common stock, May stockholders
could be adversely affected by a decrease in the trading price
of Federated common stock after the date of execution of the
merger agreement, and the merger agreement does not provide May
with a price-based termination right or other similar protection
for May or its stockholders (other than in order to protect the
tax-free nature of the transaction to the extent of the stock
consideration to be received by May stockholders in the merger,
as discussed in The Merger Agreement Merger
Consideration beginning on page 97); |
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the limitations imposed in the merger agreement that restrict,
among other things, Mays ability prior to the completion
of the merger to solicit or enter into any agreement relating to
an alternative business combination, or enter into any
discussions of any proposals that may lead to an alternative
business combination, as more fully described in the section
entitled The Merger Agreement Covenants and
Agreements No Solicitation by May beginning on
page 104; |
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the requirement that May must pay to Federated a termination fee
of $350 million if the merger agreement is
terminated under circumstances specified in the merger
agreement, as described in the section entitled The Merger
Agreement Termination Fees beginning on
page 114; |
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the challenges inherent in combining the businesses, operations
and workforces of two large companies, including the possibility
that management may be distracted from regular business concerns
by (1) unforeseen difficulties in integrating operations
and systems and (2) possible employee uncertainty in the
face of potential workforce reductions and difficulties in
assimilating employees; |
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the likelihood of realizing and the risks of not realizing the
expected operating synergies and cost savings; and |
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the risks described in the section entitled Risk
Factors beginning on page 22. |
The May board of directors also considered the interests that
certain executive officers and directors of May may have with
respect to the merger in addition to their interests as
stockholders of May generally, as described in the Section
entitled Interests of Mays Directors and
Executive Officers in the Merger on page 83, which
the May board of directors considered as being neutral in its
evaluation of the proposed transaction.
The May board of directors concluded that the positive factors
significantly outweighed the negative and neutral factors
described above. This discussion of the information and factors
considered by the May board of directors includes material
positive, negative and neutral factors considered by the May
board of directors, but it is not intended to be exhaustive and
may not include all of the factors considered by the May board
of directors. In reaching its determination to approve and
recommend the merger agreement and the transactions contemplated
by the merger agreement, including the merger, the May board of
directors did not find it useful to and did not quantify or
assign any relative or specific weights to the various factors
that it considered in reaching its determination that the merger
agreement and the transactions contemplated by the merger
54
agreement, including the merger, are advisable and fair to and
in the best interests of May and its stockholders. Rather, the
May board of directors viewed its position and recommendation as
being based on an overall analysis and on the totality of the
information presented to and factors considered by it. In
addition, in considering the factors described above, individual
members of the May board of directors may have given differing
weights to different factors.
After considering this information, the May board of directors
approved the merger agreement and the transactions contemplated
by the merger agreement, including the merger, and recommended
that May stockholders approve and adopt the merger agreement and
the transactions contemplated by the merger agreement, including
the merger.
Federateds Reasons for the Merger and Recommendation of
Federateds Board of Directors
Federateds board of directors has approved the merger
agreement and determined that the transactions contemplated by
the merger agreement are advisable and in the best interests of
Federated and its stockholders. Federateds board of
directors recommends that Federated stockholders vote FOR
the proposal to authorize the issuance of Federated common stock
pursuant to the terms of the merger agreement at the Federated
annual meeting.
In reaching its conclusion to approve the merger and the related
transactions and to recommend that Federated stockholders
authorize the issuance of Federated common stock in connection
with the merger, the Federated board considered the following
factors as generally supporting its decision to enter into the
merger agreement.
Strategic Considerations. Federateds board believes
that the merger with May will provide a number of significant
strategic opportunities and benefits, including the following,
all of which it viewed as generally supporting its decision to
approve the merger with May:
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The merger is expected to create a more efficient, competitive
national retailer, with approximately $30 billion in annual
revenues and significantly broader geographic coverage, with a
total of approximately 1,650 stores (including approximately 700
bridal and formalwear stores) in 49 states, Guam, Puerto
Rico and the District of Columbia. The combined companies will
own and operate stores in 64 of the nations top 65
geographic areas with relatively little overlap. |
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The merger with May will provide the combined companies with an
opportunity to compete more effectively in the highly
competitive, broad-based retail environment, including with
national retailers such as Sears/ K-Mart, J.C. Penneys,
Target, Wal-Mart, The Limited, Linens n Things, Bed,
Bath & Beyond, Nordstroms, Kohls,
Neiman Marcus, Saks Fifth Avenue and others. |
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Federateds board of directors also considered
managements view that the combined companies should
produce cost synergies of approximately $175 million in
2006 and approximately $450 million in 2007, resulting from
purchasing efficiencies, the ability to advertise nationally,
the consolidation of corporate services and headquarters
functions, reductions in distribution and marketing costs, and
the adoption of best practices across the combined companies,
all of which will increase competition and benefit consumers.
These benefits are expected to be realized by the end of 2007,
and the merger is expected to be accretive to Federateds
per share earnings in 2007. While these synergies reflect
managements estimates, the Federated board recognized
there could be no assurance that they would be achieved. In
addition, the potential to realize greater synergies represents
an additional factor considered by Federateds board. |
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Federateds board also considered the possibility of
achieving higher comparable store sales growth as a result of
leveraging the combined companies best people, products
and practices and enhanced ability to compete in the retail
industry on a national scale. |
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Federateds board considered the opportunities and benefits
of extending its business into additional geographic areas as a
result of the merger. May has a strong list of retail store
assets located in the midwest and elsewhere, including
Famous-Barr, Filenes, Foleys, Hechts,
Kaufmanns, |
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Lord & Taylor, L.S. Ayers, Marshall Fields,
Meier & Frank, Robinsons-May, Strawbridges and
The Jones Store, which complement Federateds current
geographic footprint. |
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Federateds board considered that Federated will be able to
augment its talent pool with the most capable managers from May. |
Other Factors Considered by the Federated Board. In
addition to considering the strategic factors outlined above,
the Federated board considered the following additional factors,
all of which it viewed as generally supporting its decision to
approve the merger with May:
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historical information concerning Mays and
Federateds respective businesses, financial performance
and condition, operations, management, competitive positions and
stock performance, including the results of the due diligence
review of Mays assets, liabilities, financial condition,
businesses and operations, which indicated that there were no
material risks associated with acquiring May, and which were
consistent with the expectations of the board as to potential
operating efficiencies and cost savings as well as other
strategic and financial benefits reasonably anticipated as a
result of the merger, and which comparisons and review generally
informed the boards determination as to the relative
values of Federated, May and the combined companies, enabling
Federated to increase the value of the merger consideration; |
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managements strategy of potentially re-branding many May
stores as Macys, which re-branding strategy management
believes will be successful based on the success of the
co-branding strategy with respect to Federateds regional
stores; |
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managements assessment that the proposed merger was likely
to meet certain criteria they deemed necessary for a successful
merger strategic fit, acceptable execution risk, and
financial benefits to Federated and Federateds
stockholders; |
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the financial analyses and presentations of Federateds
financial advisor and its opinion that, as of February 27,
2005, the consideration to be paid to the May stockholders in
the merger was fair, from a financial point of view, to
Federated (the written opinion of Goldman Sachs is attached as
Annex D to this joint proxy statement/ prospectus
and discussed in detail under Opinion of
Federateds Financial Advisor beginning on
page 75); |
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the terms and conditions of the merger agreement, including: |
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the limited number and nature of the conditions to Mays
obligation to consummate the merger and the limited risk of
non-satisfaction of such conditions; and |
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|
that Federated may be entitled to receive a $350 million
termination fee from May if the merger is not consummated for
certain reasons; |
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|
the determination that an exchange ratio that is fixed, subject
to adjustment in certain circumstances in Federateds
discretion, is appropriate to reflect the strategic purpose of
the merger and consistent with market practice for mergers of
this type and that a fixed exchange ratio avoids fluctuations
caused by near-term market volatility; and |
|
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|
the likelihood that the merger will be completed on a timely
basis, including the likelihood that the merger will receive all
necessary antitrust and other regulatory approvals without
unacceptable conditions on a timely basis. |
Potential Risks Considered by the Federated Board.
Federateds board of directors also considered the
potential risks of the merger and potential conflicts of
interest, including the following:
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|
the challenges of combining the operations of two major retail
businesses and effecting certain cultural changes; |
|
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|
the possible disruptions from certain anticipated workforce
reductions to be implemented as part of the merger integration
plan; |
56
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|
the risk that anticipated operating profit synergies and cost
savings will not be achieved (or the risk that certain cost
savings will adversely affect operating profits); |
|
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|
the one-time costs of the acquisition and integration, which
management estimated at approximately $1 billion spread
over a three-year period; |
|
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the risk that Federated may be required under the merger
agreement to commit to dispose of assets of the combined
companies valued at up to $4 billion if required by any
governmental entity in order to obtain antitrust clearance for
the merger; |
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|
the risk that Federated will have to pay May a fee of up to
$350 million if the merger agreement is terminated under
certain circumstances; |
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the potential dilution to Federateds stockholders; and |
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the risk of diverting managements attention from other
strategic priorities to implement merger integration efforts. |
The foregoing discussion of the information and factors
considered by Federateds board of directors is not meant
to be exhaustive but is believed to include all material factors
considered by it in connection with its determination that the
terms of the merger agreement, including the issuance of
Federated common stock in the merger, are advisable and in the
best interests of Federated and its stockholders. In view of the
wide variety of factors considered in connection with its
evaluation of the merger and the complexity of these matters,
the Federated board did not find it useful, and did not attempt,
to quantify, rank or otherwise assign relative weights to these
factors. In considering the factors described above, individual
members of the Federated board may have given different weight
to different factors. The Federated board conducted an overall
analysis of the factors described above, including thorough
discussions with, and questioning of, Federateds
management and Federateds legal and financial advisors,
and considered the factors overall to be favorable to, and to
support, its determination. The Federated board also considered
the experience and expertise of Goldman Sachs, its financial
advisor, in reviewing quantitative analyses of the financial
terms of the merger. See Opinion of
Federateds Financial Advisor beginning on
page 75.
Opinions of Mays Financial Advisors
May retained Morgan Stanley to provide financial advisory
services in connection with the proposed merger with Federated.
The May board of directors selected Morgan Stanley to act as
Mays financial advisor based on Morgan Stanleys
qualifications, expertise and reputation and its knowledge of
the business and affairs of May. At the meeting of the May board
of directors on February 27, 2005, Morgan Stanley rendered
its oral opinion, subsequently confirmed in writing, as of
February 27, 2005, that based upon and subject to the
assumptions, qualifications and limitations set forth in the
opinion, the consideration to be received by the holders of
shares of May common stock pursuant to the merger agreement was
fair from a financial point of view to such holders.
The full text of Morgan Stanleys opinion, dated as of
February 27, 2005, which sets forth, among other things,
the assumptions made, procedures followed, matters considered
and limitations on the review undertaken by Morgan Stanley in
rendering its opinion is attached as Annex B to this
joint proxy statement-prospectus. We urge you to read this
opinion carefully and in its entirety. Morgan Stanleys
opinion is directed to the board of directors of May, addresses
only the fairness from a financial point of view of the
consideration to be received by the holders of May common stock
pursuant to the merger agreement and does not address any other
aspect of the merger or constitute a recommendation to any May
stockholder as to how to vote at the annual meeting. This
summary is qualified in its entirety by reference to the full
text of the opinion.
57
In connection with rendering its opinion, Morgan Stanley, among
other things:
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|
reviewed certain publicly available financial statements and
other business and financial information of May and Federated,
respectively; |
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|
reviewed certain internal financial statements and other
financial and operating data concerning May prepared by the
management of May; |
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|
reviewed certain financial projections prepared by the
management of May; |
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|
discussed the past and current operations and financial
condition and the prospects of May, with senior executives of
May; |
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|
discussed the past and current operations and financial
condition and the prospects of Federated, with senior executives
of Federated; |
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discussed certain limited financial projections for Federated
with the management of Federated; |
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discussed limited pro forma financial projections, including
information relating to strategic, financial and operational
benefits and issues anticipated from the merger, with senior
executives of Federated; |
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discussed the strategic rationale of the merger with the
management of May and Federated; |
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reviewed the pro forma impact of the merger on Federateds
publicly available operating statistics, consolidated
capitalization and financial ratios; |
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|
reviewed the reported prices and trading activity for May common
stock and Federated common stock; |
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compared the financial performance of May and Federated and the
prices and trading activity of May common stock and Federated
common stock with that of certain other comparable
publicly-traded companies and their securities; |
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reviewed the financial terms, to the extent publicly available,
of certain comparable acquisition transactions; |
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participated in discussions and negotiations among
representatives of May, Federated and their financial and legal
advisors; |
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reviewed the draft merger agreement, dated February 27,
2005 and certain related documents; and |
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considered such other factors and performed such other analyses
as Morgan Stanley deemed appropriate. |
In arriving at its opinion, among other things, Morgan Stanley
assumed and relied upon without independent verification the
accuracy and completeness of the information supplied or
otherwise made available to it by May and Federated for the
purposes of its opinion. With respect to the financial
projections supplied to Morgan Stanley or discussed with Morgan
Stanley, including information relating to strategic, financial
and operational benefits and issues anticipated from the merger,
Morgan Stanley assumed they were reasonably prepared on bases
reflecting the best currently available estimates and judgments
of the future financial performance of May and Federated. For
purposes of its analysis with respect to Federated and after
discussions with the management of Federated, Morgan Stanley
used and relied on publicly available projections of equity
research analysts who report on Federated. Morgan Stanley also
relied without independent verification on the assessments of
management of May and Federated of the strategic rationale of
the merger. In addition, Morgan Stanley assumed that the merger
would be consummated in accordance with the terms set forth in
the merger agreement with no material waiver, delay or
amendment, including, among other things, that the merger would
be treated as a tax-free reorganization, pursuant to the
Internal Revenue Code of 1986, as amended. Morgan Stanley
assumed that in connection with the receipt of all the necessary
regulatory and other approvals and consents for the proposed
merger, no restrictions would be imposed that would have a
material adverse effect on the contemplated benefits expected to
be derived in the proposed merger. Morgan Stanley is not a
legal, regulatory, accounting or tax expert and assumed the
accuracy and veracity of assessments by such advisors to May and
Federated with respect to such issues. Morgan Stanley
58
also relied upon, without independent verification, the
assessment by the management of Federated and May of the timing
and risks associated with the integration of Federated and May.
Morgan Stanley did not make any independent valuation or
appraisal of the assets or liabilities of May or Federated, nor
was it furnished with any such appraisals. Morgan Stanleys
opinion was necessarily based on financial, economic, market and
other conditions as in effect on, and the information made
available to it as of, the date of its opinion.
The following is a summary of the material financial analyses
performed by Morgan Stanley in connection with its oral opinion
and the preparation of its written opinion. Although each
analysis was provided to the May board of directors, in
connection with arriving at its opinion, Morgan Stanley
considered all of its analysis as a whole and did not attribute
any particular weight to any analysis described below. These
summaries of financial analyses include information presented in
tabular format. In order to fully understand the financial
analyses used by Morgan Stanley, the tables must be read
together with the text of each summary. The tables alone do not
constitute a complete description of the financial analyses.
In connection with its analysis, Morgan Stanley calculated the
per share implied merger consideration for each
share of May common stock pursuant to the merger agreement,
which provides for the payment of $17.75 in cash and
0.3115 shares of Federated common stock for each share of
May common stock. Based on the average price per share of
Federated common stock for the ten-day trading period ending
February 25, 2005, which was $56.99, the implied merger
consideration as of February 25, 2005, was $35.50, which
was the sum of $17.75 plus $17.75 (the product of 0.3115
multiplied by $56.99).
In addition, for purposes of its analysis, Morgan Stanley noted
that both May and Federated have fiscal years ending on
January 31, so references to specific years in the
following analyses refer to fiscal years ending on January 31 of
the following year. For example, a reference to 2007 earnings
per share represents the earnings per share for the fiscal year
ending January 31, 2008.
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Historical Common Stock Performance |
Morgan Stanley performed an historical share price analysis to
provide the May board with background information and
perspective with respect to the historical share prices of May
and Federated common stock.
Consequently, Morgan Stanley reviewed the historical closing
prices and average closing prices of May common stock over
various periods during the last ten years. The tables below
summarize the historical performance of May common stock during
the periods specified.
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|
Average | |
May Common Stock Average Share Price(1)(2) |
|
per Share | |
for Period Ending February 25, 2005 |
|
Price ($) | |
|
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| |
6 Months
|
|
|
28.31 |
|
1 Year
|
|
|
28.94 |
|
2 Years
|
|
|
27.22 |
|
3 Years
|
|
|
27.68 |
|
5 Years
|
|
|
29.05 |
|
10 Years
|
|
|
31.38 |
|
|
|
(1) |
Represents unweighted average |
|
(2) |
Represents split-adjusted prices |
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|
|
|
|
|
May Common Stock Historical Trading Range |
|
Low | |
|
High | |
for Period Ending February 25, 2005 |
|
($) | |
|
($) | |
|
|
| |
|
| |
6 Months
|
|
|
24 |
|
|
|
35 |
|
1 Year
|
|
|
24 |
|
|
|
36 |
|
3 Years
|
|
|
18 |
|
|
|
38 |
|
Morgan Stanley noted that the per share implied merger
consideration for May common stock was $35.50 calculated as of
February 25, 2005.
59
Morgan Stanley also reviewed the historical trading ranges of
Federated common stock during various periods over the last
three years. The table below summarizes the historical
performance of Federated common stock during the periods
specified.
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|
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|
|
|
|
|
|
Federated Common Stock Historical Trading Range |
|
Low | |
|
High | |
for Period Ending February 25, 2005 |
|
($) | |
|
($) | |
|
|
| |
|
| |
6 Months
|
|
|
43 |
|
|
|
59 |
|
1 Year
|
|
|
43 |
|
|
|
59 |
|
3 Years
|
|
|
24 |
|
|
|
59 |
|
Morgan Stanley noted that the price per share of Federated
common stock as of February 25, 2005, was $56.79.
|
|
|
Historical Relative Stock Price Analysis |
Morgan Stanley reviewed the closing share prices of May common
stock relative to the corresponding closing share prices of
Federated common stock during various periods over the last five
years to provide background information and perspective on the
relationship between May and Federated common stock. Morgan
Stanley examined these historical relative stock prices and the
following table summarizes its analysis:
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|
|
|
|
|
|
Implied | |
|
|
Historical | |
|
May Common | |
|
|
Relative Stock | |
|
Stock Price | |
Period Ending February 25, 2005 |
|
Price (x) | |
|
per Share ($)(2) | |
|
|
| |
|
| |
February 25, 2005
|
|
|
0.622 |
|
|
|
35.35 |
|
January 14, 2005(1)
|
|
|
0.477 |
|
|
|
27.84 |
|
Last 6 Months
|
|
|
0.541 |
|
|
|
30.72 |
|
Last 1 Year
|
|
|
0.571 |
|
|
|
32.43 |
|
Last 2 Years
|
|
|
0.607 |
|
|
|
34.47 |
|
Last 3 Years
|
|
|
0.675 |
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|
|
38.36 |
|
Last 5 Years
|
|
|
0.749 |
|
|
|
42.53 |
|
|
|
(1) |
Last trading day prior to reports appearing in the popular press
regarding a potential transaction |
|
(2) |
Calculated by multiplying the historical relative stock price
for a given period by Federateds closing share price of
$56.79 as of February 25, 2005, with the exception of the
January 14, 2005 implied price which was based on
Federateds closing share price of $58.37 as of that date |
Morgan Stanley noted that the implied merger consideration for
May common stock was $35.50 and the implied relative stock price
(assuming no cash consideration) was 0.625x, each calculated as
of February 25, 2005.
60
|
|
|
Historical Forward P/ E Ratio Analysis |
Morgan Stanley reviewed and compared the historical forward P/E
ratios for May and Federated during various periods over the
last five years to provide background information and
perspective on the relationship between May and Federated common
stock trading levels. These ratios are calculated by dividing
the share price as of a certain date by the 12-month forward
EPS, or future earnings per share, estimate as of that same date
based on the I/B/E/S median of publicly available equity
research projections. I/B/E/S is a data source that monitors and
publishes a compilation of earnings per share estimates produced
by selected research analysts on companies of interest to
investors. Morgan Stanley examined these ratios during various
periods ending February 25, 2005. These average historical
forward P/ E ratios, as well as the implied premium of
Mays ratios to those of Federated, are as follows:
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|
P/E Ratios | |
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| |
|
May | |
Period Ending February 25, 2005 |
|
May | |
|
Federated | |
|
Premium | |
|
|
| |
|
| |
|
| |
February 25, 2005
|
|
|
15.6x |
|
|
|
12.4x |
|
|
|
26.4 |
% |
January 14, 2005
|
|
|
12.2x |
|
|
|
12.7x |
|
|
|
(4.2 |
)% |
Last 6 Months
|
|
|
12.1x |
|
|
|
11.8x |
|
|
|
3.0 |
% |
Last 1 Year
|
|
|
12.4x |
|
|
|
11.9x |
|
|
|
4.1 |
% |
Last 2 Years
|
|
|
12.7x |
|
|
|
11.7x |
|
|
|
8.6 |
% |
Last 3 Years
|
|
|
12.2x |
|
|
|
10.9x |
|
|
|
11.5 |
% |
Last 5 Years
|
|
|
11.6x |
|
|
|
10.3x |
|
|
|
13.6 |
% |
All-Time High (during the last 5 years)
|
|
|
16.9x |
(1) |
|
|
14.1x |
(2) |
|
|
19.9 |
% |
|
|
(1) |
As of February 18, 2004 |
|
(2) |
As of March 4, 2004 |
Morgan Stanley noted that the implied forward P/ E multiple
based on the implied merger consideration for May common stock
of $35.50 calculated as of February 25, 2005, was 15.7x,
which implied a premium of 27.0% for the implied merger
consideration.
|
|
|
Selected Precedent Transaction Analysis |
Morgan Stanley also performed a precedent transaction analysis,
which is designed to provide a valuation of May based on
publicly available financial terms and premia of selected
transactions that share some characteristics with the merger. In
selecting the transactions it used in this analysis, Morgan
Stanley reviewed transactions since January 1, 2000 to
present with an aggregate value greater than $10 billion
involving cash consideration representing between 25% and 50% of
the transactions total aggregate value. In this analysis,
aggregate value is a measure of each companys
value that is calculated by adding its market capitalization,
total debt, preferred shares and minority interest less cash and
cash equivalents.
In its analysis, Morgan Stanley reviewed the following precedent
transactions:
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GPU Inc./ FirstEnergy |
|
|
|
Banacci/ Citigroup |
|
|
|
Sears Roebuck/ KMart Holding Corp |
|
|
|
Guidant/ Johnson & Johnson |
|
|
|
Times Mirror/ Tribune |
|
|
|
Aventis/ Sanofi-Synthelabo |
|
|
|
Caesars Entertainment/ Harrahs Entertainment |
|
|
|
Credit Commercial de France/ HSBC |
61
From these selected transactions, Morgan Stanley, based on its
experience with the department store industry generally and
large merger and acquisition transactions, derived a reference
range of premia paid relative to the trading share prices at two
different periods of time preceding the announcement of a
transaction. The premium paid relative to the share price four
weeks prior to deal announcement ranged from 15.5% to 67.1%,
with a median of 32.8%. The premium paid relative to the share
price one day prior to deal announcement ranged from 7.0% to
96.1%, with an average of 17.1%. Morgan Stanley then selected an
unaffected premium range of 20% to 30% based on the precedent
transactions listed above and applied that range to the May
common stock price as of January 14, 2005, the last trading
day prior to news reports appearing in the popular press
regarding potential discussions between May and Federated. The
analysis resulted in a range of implied values of $33 to
$36 per share of May common stock.
Morgan Stanley noted that the per share implied merger
consideration for May common stock was $35.50 calculated as of
February 25, 2005.
No transaction utilized in the selected precedent transactions
analysis is identical to the merger. In evaluating the
transactions, Morgan Stanley made judgments and assumptions with
regard to industry performance, general business, economic,
market and financial conditions and other matters, many of which
are beyond the control of May or Federated, such as the impact
of competition on May or Federated and the industry generally,
industry growth and the absence of any adverse material change
in the financial condition and prospects of May or Federated or
in the financial markets in general. Mathematical analysis, such
as determining the mean or median, or the high or the low, is
not in itself a meaningful method of using comparable
transaction data.
|
|
|
Present Value of Equity Research Analyst Targets |
Morgan Stanley reviewed publicly available equity research on
May and Federated and used the per share price targets from
these research reports to arrive at a range of present values
per share of May and Federated common stock.
For May, Morgan Stanley considered the range of publicly
available equity research analyst price targets prior to
January 14, 2005, the last trading day prior to news
reports appearing in the popular press regarding potential
discussions between May and Federated, and calculated the
present value of such targets based on a nine-month period and
assuming a 10% estimated cost of equity. This analysis resulted
in a range of implied values of $28 to $33 per share of May
common stock.
Morgan Stanley noted that the per share implied merger
consideration for May common stock was $35.50 calculated as of
February 25, 2005.
For Federated, Morgan Stanley considered the range of publicly
available equity research analyst price targets prior to
February 25, 2005, and calculated the present value of such
targets based on a nine-month period and assuming a 10%
estimated cost of equity. This analysis resulted in a range of
implied values of $51 to $61 per share of Federated common
stock.
Morgan Stanley noted that the price per share of Federated
common stock as of February 25, 2005, was $56.79.
62
|
|
|
Future Stock Price Present Value |
Morgan Stanley performed a discounted equity value analysis,
which is designed to provide insight into the future value of a
companys common equity, as a function of the
companys future earnings and its current forward P/ E
multiple. The resulting value is subsequently discounted to
arrive at the present value of May and Federated future stock
price.
For May, Morgan Stanley considered the range of values per share
for May based on the estimated 2007 earnings per share provided
by Mays management under four different scenarios as well
as the estimated 2007 earnings per share based on the I/B/E/S
median of publicly available equity research projections,
referred to as the Research Case. In its analysis, Morgan
Stanley assumed all of the scenarios were achievable and did not
make any judgment with respect to the potential risks embedded
in the different scenarios prepared by Mays management.
The following table presents the resulting ranges of implied per
share values for May, assuming a forward P/ E multiple range of
11.0x to 15.0x based on the historical forward P/ E range that
was used to calculate the future stock price as of the end of
2006 and which was then discounted for a two-year period at a
10% estimated cost of equity.
|
|
|
|
|
|
|
Implied per Share | |
|
|
Value of May | |
|
|
Common Stock | |
|
|
| |
Research Case
|
|
$ |
22 - $31 |
|
Management Case A(1)
|
|
$ |
25 - $34 |
|
Management Case B(2)
|
|
$ |
26 - $35 |
|
Management Case C(3)
|
|
$ |
28 - $38 |
|
Management Case D(4)
|
|
$ |
29 - $40 |
|
|
|
(1) |
May management internal five-year projections |
|
(2) |
May management internal five-year projections including share
repurchases and debt refinancing |
|
(3) |
May management internal five-year projections including share
repurchases and debt refinancing and the benefits of divisional
consolidation |
|
(4) |
May management internal five-year projections including share
repurchases and debt refinancing, the benefits of divisional
consolidations and sale of the credit card receivables |
Morgan Stanley also prepared a sensitivity analysis on the
present value of Mays future stock price. Specifically,
Morgan Stanley considered the range of values per share for May
implied by a range of forward P/ E multiples between 9.0x and
15.0x and a range of potential earnings per share compound
annual growth rate between 2005 and 2007 of 0% to 20% and using
Mays 2004 earnings per share of $1.93 (includes $0.10 of
store divestiture costs per 2004 earnings press release and
$0.13 of other charges per management guidance). This analysis
resulted in a range of implied values per share of May common
stock of $14 to $41.
Morgan Stanley noted that the per share implied merger
consideration for May common stock was $35.50 calculated as of
February 25, 2005.
63
For Federated, Morgan Stanley considered the range of values per
share for Federated based on financial forecasts and estimates
based on the I/B/E/S median of publicly available equity
research projections for 2005 to 2007. The following table
presents the resulting ranges of implied per share values for
Federated, assuming Federateds current forward P/ E
multiple range of 12.0x to 13.0x for 2005 to estimate the
current Federated stock price and assuming Federateds
historical P/ E range of 10.0x to 14.0x for 2006 and 2007 to
estimate Federateds future stock prices as of the end of
2005 and 2006 and which were then discounted for one year and
two years, respectively, at a 10.0% estimated cost of equity.
|
|
|
|
|
|
|
Implied per Share | |
|
|
Value of Federated | |
|
|
Common Stock | |
|
|
| |
2005E EPS of $4.60
|
|
$ |
55 - $60 |
|
2006E EPS of $4.98
|
|
$ |
45 - $63 |
|
2007E EPS of $5.43
|
|
$ |
45 - $63 |
|
Morgan Stanley noted that the price per share of Federated
common stock as of February 25, 2005 was $56.79.
|
|
|
Discounted Cash Flow Analysis |
Morgan Stanley performed a discounted cash flow analysis for May
and Federated, which is designed to provide insight into the
value of a company as a function of its future cash flows and
expenditures.
For May, Morgan Stanley performed a five-year discounted cash
flow analysis, calculated as of February 25, 2005, of the
after-tax unlevered free cash flows for 2005 through 2009, based
on the financial forecasts and estimates of Scenarios A and C
(as previously described in Present Value of May Future
Stock Price) provided by May management as well as using
financial forecasts and estimates based on the I/B/E/S median of
publicly available equity research projections. Morgan Stanley
estimated a range of terminal values calculated in 2009 based on
a perpetual growth rate range of 0.5% to 1.5%. Morgan Stanley
then discounted the unlevered free cash flow streams and the
estimated terminal value to a present value at a discount rate
of 8.0% for each case. The discount rates utilized in this
analysis were chosen based upon an analysis of the weighted
average cost of capital of May and other comparable companies.
The weighted average cost of capital is a measure of the average
expected return on all of a companys securities or loans
based on the proportions of those securities or loans in such
companys capital structure. Based on the aforementioned
projections and assumptions, the discounted cash flow analysis
of May yielded an implied valuation range of May common stock as
follows:
|
|
|
|
|
Research Case: $22 $27 per share |
|
|
|
Management Case A: $29 $35 per share |
|
|
|
Management Case C: $33 $39 per share |
Morgan Stanley noted that the per share implied merger
consideration for May common stock was $35.50 calculated as of
February 25, 2005.
Morgan Stanley performed a five-year discounted cash flow
analysis for Federated, calculated as of February 25, 2005,
of the after-tax unlevered free cash flows for 2005 through
2009, based on financial forecasts and estimates based on the
I/B/E/S median of publicly available equity research
projections. Morgan Stanley estimated a range of terminal values
calculated in 2009 based on a perpetual growth rate range of
0.5% to 1.5%. Morgan Stanley discounted the unlevered free cash
flow streams and the estimated terminal value to a present value
at a discount rate of 8.0%. The discount rates utilized in this
analysis were
64
chosen based upon an analysis of the weighted average cost of
capital of Federated and other comparable companies. Based on
the aforementioned projections and assumptions, the discounted
cash flow analysis of Federated yielded an implied valuation
range of Federated common stock of $58 to $67 per share.
Morgan Stanley noted that the price per share of Federated
common stock as of February 25, 2005, was $56.79.
|
|
|
Present Value Analysis of the Merger |
Morgan Stanley evaluated the cash and stock components of the
merger consideration to arrive at the present value of the
merger consideration on a per share basis. In arriving at the
present value of the stock portion of the merger consideration
on a pro forma basis, Morgan Stanley conducted the analysis
using the present value of future stock price methodology, as
described above, assuming a forward P/ E multiple range of 12.0x
to 14.0x and an estimated cost of equity of 10.0% and the
discounted cash flow valuation methodology, as described above,
assuming a perpetual growth rate range of 1.0% to 1.5% and a
weighted average cost of capital of 8.0%. Morgan Stanley used
two pro forma scenarios based on forecasts and estimates
provided by Federateds management which assumed, among
other things, cost synergies, certain adjustments for lost sales
from stores sold, sales disruption and one time costs based on
guidance from Federateds management. The two scenarios
differed primarily in the following respects:
|
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|
Pro Forma Scenario A: no sale of Federateds credit card
receivables. |
|
|
|
Pro Forma Scenario B: sale of Federateds credit card
receivables at par, with Federated retaining 75% of the
operating income of the portfolio and using the proceeds from
the receivables sale over two years to pay down debt and buy
back shares. |
Based on the aforementioned assumptions and scenarios, the
present value of future stock price analysis of Federated
yielded an implied total value per share to May stockholders as
follows:
|
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|
Pro Forma Scenario A: $38 $41 per share |
|
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Pro Forma Scenario B: $42 $46 per share |
Based on the aforementioned assumptions and scenarios, the
discounted cash flow analysis of Federated yielded an implied
total value per share to May stockholders as follows:
|
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|
Pro Forma Scenario A: $38 $40 per share |
|
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|
Pro Forma Scenario B: $45 $47 per share |
Morgan Stanley noted that the per share implied merger
consideration for May common stock was $35.50 calculated as of
February 25, 2005.
In connection with the review of the merger by Mays board
of directors, Morgan Stanley performed a variety of financial
and comparative analyses for purposes of rendering its opinion.
The preparation of a fairness opinion is a complex process and
is not necessarily susceptible to a partial analysis or summary
description. In arriving at its opinion, Morgan Stanley
considered the results of all of its analyses as a whole and did
not attribute any particular weight to any analysis or factor
considered by it. Morgan Stanley believes that the summary
provided and the analyses described above must be considered as
a whole and that selecting portions of these analyses, without
considering all of them as a whole, would create an incomplete
view of the process underlying its analyses and opinion. In
addition, Morgan Stanley may have given various analyses and
factors more or less weight than other analyses and factors and
may have deemed various assumptions more or less probable than
other assumptions, so that the range of valuations resulting
from any particular analysis described above should therefore
not be taken to be Morgan Stanleys view of the actual
value of May and Federated combined.
In performing its analyses, Morgan Stanley made numerous
assumptions with respect to industry performance, general
business and economic conditions and other matters, many of
which are beyond the control of May and Federated. Any estimates
contained in Morgan Stanleys analyses are not necessarily
65
indicative of future results or actual values, which may be
significantly more or less favorable than those suggested by
these estimates. The analyses performed were prepared solely as
a part of the analyses of Morgan Stanley of the fairness from a
financial point of view of the consideration to be received by
the holders of shares of May common stock pursuant to the merger
agreement and were conducted in connection with the delivery by
Morgan Stanley of its opinion dated February 27, 2005 to
the board of directors of May. Morgan Stanleys analyses do
not purport to be appraisals or to reflect the prices at which
shares of common stock of May might actually trade. The merger
consideration in the merger was determined through
arms-length negotiations between May and Federated and was
approved by Mays board of directors. Morgan Stanley did
not recommend any specific merger consideration to May or that
any given merger consideration constituted the only appropriate
merger consideration for the merger.
In addition, Morgan Stanleys opinion and its presentation
to Mays board of directors was one of many factors taken
into consideration by Mays board of directors in deciding
to approve the merger. Consequently, the analyses as described
above should not be viewed as determinative of the opinion of
Mays board of directors with respect to the merger
consideration or of whether Mays board of directors would
have been willing to agree to a different merger consideration.
Morgan Stanley is an internationally recognized investment
banking and advisory firm. Morgan Stanley, as part of its
investment banking and financial advisory business, is
continuously engaged in the valuation of businesses and their
securities in connection with mergers and acquisitions,
negotiated underwritings, competitive biddings, secondary
distributions of listed and unlisted securities, private
placements and valuations for corporate and other purposes. In
the ordinary course of business, Morgan Stanley may from time to
time trade in the securities of or indebtedness of May and
Federated for its own account, the accounts of investment funds
and other clients under the management of Morgan Stanley and for
the accounts of its customers and, accordingly, may at any time
hold a long or short position in these securities or
indebtedness. Morgan Stanley has, from time to time, provided
investment banking, commercial banking (including extension of
credit) and other financial services to May for which it
received fees of approximately $20 million over the last
two years.
If the merger is consummated, May has agreed to pay Morgan
Stanley under the terms of its engagement a fee which, if
calculated as of February 27, 2005, would be approximately
$51 million, all of which is payable upon consummation of
the merger. May has also agreed to reimburse Morgan Stanley for
its expenses incurred in performing its services and to
indemnify Morgan Stanley and its affiliates, their respective
directors, officers, agents and employees and each person, if
any, controlling Morgan Stanley or any of its affiliates against
certain liabilities and expenses, including certain liabilities
under federal securities laws, related to or arising out of
Morgan Stanleys engagement and any related transactions.
On February 23, 2005, May engaged PJSC to act as its
financial advisor with respect to rendering a fairness opinion
regarding the consideration proposed to be received by the
holders of May common stock in the merger. On February 27,
2005, PJSC rendered its oral opinion telephonically to
Mays board of directors, which opinion was confirmed by
delivery of a written opinion, which we refer to in this joint
proxy statement/ prospectus as PJSCs opinion, to the
effect that, based upon and subject to various considerations
set forth in such opinion, as of February 27, 2005, the
consideration proposed to be received by the holders of May
common stock in connection with the merger was fair from a
financial point of view to the holders of May common stock.
The full text of PJSCs opinion, which sets forth
assumptions made, procedures followed, matters considered,
limitations on and scope of the review by PJSC in rendering
PJSCs opinion, is attached to this joint proxy statement/
prospectus as Annex C and is incorporated by
reference into this joint proxy statement/ prospectus.
PJSCs opinion was directed only to the fairness of the
consideration proposed to be received by the holders of May
common stock in the merger from a financial point of view, was
provided to Mays board of directors in connection with its
evaluation of the merger, did not address any other aspect of
the merger and did not, and does not, constitute a
recommendation to any holder of May common stock as to how
any
66
stockholder should vote or act on any matter relating to the
merger. The summary of PJSCs opinion set forth in this
joint proxy statement/ prospectus is qualified in its entirety
by reference to the full text of such opinion. Holders of May
common stock are urged to read PJSCs opinion carefully and
in its entirety. PJSC has consented to the use of
PJSCs opinion in this joint proxy statement/ prospectus.
In connection with PJSCs opinion, PJSC:
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(i) Reviewed certain publicly available financial
statements and other information of May and Federated; |
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(ii) Reviewed certain internal financial statements and
other financial and operating data concerning May prepared by
the management of May; |
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(iii) Reviewed certain financial projections for May
prepared by the management of May; |
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|
(iv) Reviewed financial forecasts and estimates for
Federated prepared by independent research analysts contained in
publicly available research reports regarding the future
financial performance of Federated and discussed such forecasts
and estimates with the management of Federated; |
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|
(v) Discussed the past and current operations, financial
condition and prospects of May with the management of May; |
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|
(vi) Discussed the past and current operations, financial
condition and prospects of Federated, including information
relating to certain strategic, financial and operational
benefits anticipated from the merger, with the management of
Federated; |
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|
(vii) Reviewed the reported prices and trading activity of
May common stock and Federated common stock; |
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|
(viii) Compared the financial performance and condition of
May and Federated and the reported prices and trading activity
of May common stock and Federated common stock with that of
certain other comparable publicly traded companies; |
|
|
(ix) Reviewed publicly available information regarding the
financial terms of certain transactions comparable, in whole or
in part, to the merger; |
|
|
(x) Reviewed the draft merger agreement dated as of
February 25, 2005; and |
|
|
(xi) Performed such other analyses as PJSC deemed
appropriate. |
PJSC assumed and relied upon the accuracy and completeness of
the information reviewed by PJSC for the purposes of this
opinion and PJSC did not assume any responsibility for
independent verification of such information and relied on such
information being complete and correct. With respect to the
financial projections of May, PJSC also assumed that the
financial projections were reasonably prepared on bases
reflecting the best currently available estimates and judgments
of the future financial performance of May. PJSC was not
provided with, and did not have any access to, any financial
projections of Federated prepared by the management of Federated
or May. Accordingly, upon advice of the management of Federated
and with Mays consent, PJSC assumed that the financial
forecasts and estimates for Federated published by independent
research analysts contained in publicly available research
reports that PJSC reviewed were a reasonable basis upon which to
evaluate the future financial performance of Federated, and PJSC
relied upon such estimates, as modified by additional
information from the management of Federated, in performing
PJSCs analysis. Furthermore, with Mays consent, PJSC
relied upon the estimates made by the management of Federated of
certain potential strategic, financial and other benefits
expected to result from the merger without independent
assessment. PJSC did not conduct a physical inspection of the
facilities or property of May or Federated. PJSC did not assume
any responsibility for any independent valuation or appraisal of
the assets or liabilities of May or Federated, nor was PJSC
furnished with any such valuation or appraisal. Furthermore,
PJSC did not consider any tax effects of the merger on any
person or entity.
PJSC assumed that the final form of the merger agreement would
be substantially the same as the last draft reviewed by PJSC.
PJSC also assumed that the merger would be consummated in
accordance with the
67
terms of the merger agreement, without waiver, modification or
amendment of any material term, condition or agreement
(including, without limitation, the consideration to be received
by the holders of May common stock in connection with the
merger), and that, in the course of obtaining the necessary
regulatory or third party approvals, consents and releases for
the merger, no delay, limitation, restriction or condition would
be imposed that would have a material adverse effect on May or
Federated or the contemplated benefits of the merger. PJSC
further assumed that all representations and warranties set
forth in the merger agreement were true and correct and that all
parties to the merger agreement will comply with all covenants
of such party thereunder.
PJSCs opinion was necessarily based on economic, market
and other conditions as in effect on, and the information made
available to PJSC as of, February 26, 2005. In particular,
PJSC did not express any opinion as to the prices at which
shares of either May common stock or Federated common stock may
trade at any future time. Furthermore, PJSCs opinion did
not address Mays underlying business decision to undertake
the merger.
No limitations were imposed by Mays board of directors
upon PJSC with respect to investigations made or procedures
followed by PJSC in rendering PJSCs opinion.
The following summarizes the significant financial analyses
performed by PJSC and reviewed with Mays board of
directors on February 27, 2005, in connection with the
delivery of PJSCs opinion. The financial analyses
summarized below include information presented in tabular
format. In order to fully understand PJSCs financial
analyses, the tables must be read together with the text of each
summary. The tables alone do not constitute a complete
description of the financial analyses. Considering the data in
the tables below without considering the full narrative
description of the financial analyses, including the
methodologies and assumptions underlying the analyses, could
create a misleading or incomplete view of PJSCs financial
analyses.
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Historical Share Price Analysis May |
PJSC performed an historical share price analysis to provide
background information with respect to historical share price
performance of May common stock and to assess the price implied
by the merger consideration in comparison to this historical
share price performance.
PJSC reviewed the closing prices and trading volumes of May
common stock on the New York Stock Exchange from
February 25, 2000, to February 25, 2005 (one trading
day prior to the rendering of PJSCs opinion). During the
twelve months ended February 25, 2005, the high closing
price for May common stock was $36.31 per share and the low
closing price was $23.95 per share. In addition, during the
twelve months ended February 25, 2005, the average closing
price for May common stock was $28.94 per share and the
median closing price was $28.51 per share. During the
period from February 25, 2000 to February 25, 2005,
the high closing price for May common stock was $41.25 per
share and the low closing price was $18.01 per share.
PJSC calculated the premiums implied by the blended merger
consideration of $35.44, which we refer to as the implied per
share merger consideration, for each outstanding share of May
common stock to derive premiums over the median price of May
common stock for the specified time periods below. The implied
per share merger consideration of $35.44 is based on
$17.75 per share in cash and the 0.3115 shares of
Federated common stock valued at $56.79 as of the close of
trading on February 25, 2005. PJSC derived premiums over
the median price of May common stock for periods prior to
(1) January 14, 2005 (the date on which, after the
stock markets close, May announced the resignation of its
chief executive officer, after which, on the following day, the
price of May common stock closed at $32.21, up 15.7%), and
(2) February 25, 2005 (one trading day prior to the
rendering of PJSCs opinion). PJSC analyzed premiums over
the median price of May common stock prior to January 14,
2005, in order to analyze the premiums without the effect on the
price of
68
May common stock of public speculation regarding a potential
merger with Federated. The derived premiums were:
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|
Offer Price | |
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Premium to Median | |
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| |
Time Periods Prior to Jan. 14, 2005:
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|
7 Days Prior
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|
27.6 |
% |
30 Days Prior
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|
23.7 |
|
60 Days Prior
|
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|
23.6 |
|
90 Days Prior
|
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|
24.6 |
|
180 Days Prior
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35.5 |
|
Last 1 Year Prior
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24.3 |
|
Last 3 Years Prior
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28.9 |
|
Last 5 Years Prior
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23.9 |
|
Time Periods Prior to Feb. 25, 2005:
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|
7 Days Prior
|
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|
4.3 |
|
30 Days Prior
|
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6.3 |
|
60 Days Prior
|
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|
11.0 |
|
90 Days Prior
|
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20.9 |
|
180 Days Prior
|
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|
25.6 |
|
Last 1 Year Prior
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24.3 |
|
Last 3 Years Prior
|
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28.9 |
|
Last 5 Years Prior
|
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23.5 |
|
PJSC also reviewed the relative performance from
February 25, 2000, to February 25, 2005, of
(1) May, (2) Federated, (3) the
Standard & Poors 500 Index, and (4) a market
capitalization weighted industry index consisting of the
following department store retailers: Dillards, Inc., J.C.
Penney Company, Inc., Kohls Corporation, Nordstrom, Inc.,
The Neiman Marcus Group, Inc. and Saks Incorporated. During the
period from February 25, 2004, to February 25, 2005
(one trading day prior to the rendering of PJSCs opinion),
the price of May common stock returned 0.0%, the price of
Federated common stock increased 8.1%, the market capitalization
weighted index appreciated 14.3%, and the S&P 500 Index
appreciated 5.9%. During the period from February 25, 2000,
to February 25, 2005, the price per share of May common
stock increased 38.0%, the price per share of Federated common
stock increased 74.4%, the market capitalization weighted index
appreciated 97.9%, and the S&P 500 Index depreciated 9.1%.
The above analysis showed that: (1) the closing price per
share of May common stock of $35.35 on February 25, 2005
was just below $36.31, its highest closing price during such
period, and above its median price over the one year period
prior to February 25, 2005 ($28.51); and (2) the price
of May common stock increased during the one year period ending
February 25, 2005 to a lesser extent than the industry
index and the S&P 500. Furthermore, the implied per share
merger consideration represented a premium of not less than
23.6% for all periods up to January 14, 2005 (one trading
day prior to the announcement of the resignation of Mays
chief executive officer), which PJSC believed to be the most
relevant time period to consider. This analysis suggested that
the value of the implied per share merger consideration was
greater than the median of historical trading prices of May
common stock over each calculated period.
|
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Analysis of Selected Publicly Traded Comparable
Companies |
PJSC performed a comparable companies analysis to determine
(1) what Mays valuation would be if the May common
stock traded in the valuation range of comparable retail
companies, as determined based on publicly-available financial
metrics for comparable retail companies, and (2) what
Mays valuation would be if the May common stock traded in
such range and were to receive a premium to this valuation
consistent with premiums received by other publicly traded
companies in recent, large mergers and acquisitions.
69
PJSC reviewed and compared selected financial data of May with
similar data using publicly available information of the
following publicly traded companies, which, based on PJSCs
experience with companies in the department store retail
industry, PJSC deemed comparable to May:
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Federated, |
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Dillards, Inc., |
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J.C. Penney Company, Inc., |
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|
Kohls Corporation, |
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Nordstrom, Inc., |
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The Neiman Marcus Group, Inc. and |
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Saks Incorporated. |
These companies are referred to under this section Peter
J. Solomon Company as the comparable companies.
PJSC calculated and compared various financial multiples and
ratios, including, among other things: (1) the most recent
stock price per share as a multiple of earnings per share,
commonly referred to as earnings per share or E.P.S., for the
fiscal years (ended January 31 of the following year) 2004, 2005
and 2006 based upon (i) the closing stock prices as of
February 25, 2005, and the median of Wall Street
analysts estimates for E.P.S. for May as reported by First
Call Investment Research on February 25, 2005 (one trading
day prior to the rendering of PJSCs opinion) for the
comparable companies and (ii) E.P.S. for May based on
(a) actual 2004 E.P.S. of May, (b) a set of
projections prepared by May management, which we refer to as the
Base Case, and (c) the median of Wall Street analysts
expectations of E.P.S. for May for fiscal years 2005 and 2006;
and (2) enterprise value (which represents total equity
value plus book values of total debt, preferred stock and
minority interests less cash) as a multiple of (i) net
sales, earnings before interest and taxes, commonly referred to
as EBIT, and earnings before interest, taxes, depreciation and
amortization, commonly referred to as EBITDA, for the comparable
companies and (ii) pro forma net sales, EBIT and EBITDA of
May (assuming Mays acquisition of Marshall Fields
occurred at the beginning of fiscal 2004 using estimates
provided by May), in either case, over the latest twelve months
or fiscal year ended January 31, 2005.
Based on this data, as of February 25, 2005, PJSC developed
a summary valuation analysis based on a range of trading
valuation multiples and ratios for certain of the comparable
companies and May. This analysis resulted in the following
ranges of multiples and ratios:
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Range of | |
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Trading | |
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Multiples | |
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| |
Trailing Data for Last Twelve Months ended January 31,
2005
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|
Enterprise Value as a Ratio of:
|
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|
|
|
|
|
|
|
|
|
|
|
Net Sales
|
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60.0 |
% |
|
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- |
|
|
|
115.0 |
% |
|
EBITDA
|
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|
6.0 |
x |
|
|
- |
|
|
|
8.0 |
x |
|
EBIT
|
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|
9.0 |
x |
|
|
- |
|
|
|
14.0 |
x |
Equity Value as a Ratio of:
|
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|
|
|
|
|
|
|
|
|
|
|
Net Income
|
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|
22.0 |
x |
|
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- |
|
|
|
14.0 |
x |
Projected Data
|
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|
Equity Value as a Ratio of:
|
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|
|
|
|
|
|
|
|
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|
2005 Net Income
|
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12.0 |
x |
|
|
- |
|
|
|
20.0 |
x |
|
2006 Net Income
|
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11.0 |
x |
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- |
|
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|
16.0 |
x |
PJSC calculated the implied equity value per share of May common
stock using the multiples and ratios from the comparable
companies and applied them to Mays financial statistics,
both excluding and including a control premium. For
these purposes, PJSC used a control premium of 19%, which is the
mean control
70
premium paid (to closing price one week prior) in all announced
United States mergers and acquisitions transactions valued over
$1 billion since February 22, 2002, as reported by
Thomson Mergers & Acquisitions.
This analysis yielded: (i) a range of values from $20.00 to
$40.00 per share for May common stock excluding a control
premium, and PJSC noted that the implied per share merger
consideration of $35.44 was near the top of the valuation range
for this analysis, and (ii) a range of values from $23.80
to $47.60 per share of May common stock including a control
premium, and PJSC noted that the implied per share merger
consideration of $35.44 was above the middle of the range of
value implied by this analysis. This analysis suggested that the
value of the implied per share merger consideration was within a
range of values for May determined by comparison to the values
of the comparable companies both with and without a control
premium.
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Analysis of Selected Comparable Transactions |
To analyze the valuation of the implied per share merger
consideration to be received by holders of May common stock
relative to the consideration received by shareholders in other
similar transactions, PJSC prepared an analysis of selected
comparable transactions.
Using publicly available information, PJSC reviewed certain
mergers and acquisitions transactions in the department store
retail industry which PJSC believed were comparable to the
merger. The list of transactions reviewed were (including the
acquiror and target in the transaction, respectively):
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(i) Kmart Holding Corporation/ Sears Roebuck & Co. |
|
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(ii) Jones Apparel Group/ Barneys, Inc. |
|
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(iii) May/ Marshall Fields and nine Mervyns
stores |
|
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(iv) Proffitts Inc./ Saks Holdings, Inc. |
|
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(v) Dillards Inc./ Mercantile Stores Co. Inc. |
|
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(vi) Proffitts Inc./ Carson Pirie Scott & Co. |
|
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(vii) Proffitts Inc./ Parisian, Inc. |
|
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(viii) May/ Strawbridge & Clothier |
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(ix) Federated/ Broadway Stores Inc. |
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(x) Federated/ R.H. Macy & Co., Inc. |
These transactions are referred to under this section
Peter J. Solomon Company as the comparable
transactions.
PJSC calculated the multiples of the last twelve months
net sales, EBITDA and EBIT paid in these selected comparable
transactions. PJSC calculated the implied equity values per
share for May using this range of multiples and ratios applied
to pro forma statistics for 2004 of May (assuming the
acquisition of Marshall Fields occurred at the beginning
of fiscal 2004, according to management of May). This analysis
resulted in the following ranges of multiples and ratios:
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|
Range of | |
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Multiples | |
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| |
Enterprise Value as a Ratio of:
|
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|
|
|
|
|
|
|
|
|
|
|
Net Sales
|
|
|
65.0 |
% |
|
|
- |
|
|
|
125.0 |
% |
|
EBITDA
|
|
|
8.0 |
x |
|
|
- |
|
|
|
14.5 |
x |
|
EBIT
|
|
|
11.0 |
x |
|
|
- |
|
|
|
19.0 |
x |
Based on the foregoing, this analysis yielded a range of values
from $28.00 to $60.00 per share of May common stock. PJSC
noted that the implied per share merger consideration fell in
the range of the results of
71
this analysis. This analysis suggested that the value of the
implied per share merger consideration was within the range of
values received in the comparable transactions.
|
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Discounted Cash Flow Analysis |
PJSC performed a discounted cash flow analysis to calculate the
theoretical per share value of May common stock based on the
value of earnings from five years of forecasted future cash
flows of May.
PJSC prepared a discounted cash flow analysis to calculate the
net present value per share of May common stock based on two
financial forecasts prepared by May: (a) the Base Case and
(b) a set of projections of May provided by May management
derived from adding to the Base Case the following: the benefits
of combining certain May divisions, the sale of Mays
receivables portfolio and special share repurchases and debt
refinancing per Mays management, which we refer to as the
Alternative Case. In performing its discounted cash flow
analysis, PJSC considered various assumptions that it deemed
appropriate based on a review with management of Mays
prospects and risks. PJSC believed it appropriate to utilize
various discount rates ranging from 7.5% to 9.5% and EBITDA
terminal value multiples ranging from 6.5x to 8.5x to apply to
forecasted EBITDA for the fiscal year 2008.
Based on the foregoing, this analysis yielded a range of net
present values from $27.00 to $42.00 per share of May
common stock based on the Base Case and a range of net present
values from $32.00 to $46.00 per share of May common stock
based on the Alternative Case. PJSC noted that the implied per
share merger consideration fell within the range of per share
results from these analyses. This analysis suggested that the
value of the implied per share merger consideration was within
the range of values of the May common stock based on the value
of projected earnings from five years of forecasted future cash
flows of May.
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Historical Share Price Analysis
Federated |
In view of the fact that holders of May common stock would
receive shares of Federated common stock as part of the merger
consideration, PJSC evaluated the price of Federated common
stock at February 25, 2005, relative to its historical
share price performance.
PJSC reviewed the closing prices and trading volumes of
Federated common stock on the New York Stock Exchange from
February 25, 2000, to February 25, 2005 (one trading
day prior to the rendering of PJSCs opinion). During the
twelve months ended February 25, 2005, the high closing
price for the Federated common stock was $59.13 per share
and the low closing price was $43.11 per share. In
addition, during the twelve months ended February 25, 2005,
the average closing price for Federated common stock was
$50.70 per share and the median closing price was
$49.99 per share. During the period from February 25,
2000, to February 25, 2005, the high closing price for
Federated common stock was $59.13 per share and the low
closing price was $23.50 per share.
PJSC noted that the closing price of Federated common stock on
February 25, 2005 (one trading day prior to the rendering
of PJSCs opinion) was higher than the median price over
the seven day period prior to February 25, 2005, lower than
the median price over the 30 and 60 day periods prior to
February 25, 2005, and higher than the 90 and 180 day
periods prior to February 25, 2005. This analysis suggested
that the value of the Federated common stock to be received by
holders of May common stock as a part of the merger
consideration was not significantly above the range of
historical trading prices of Federated common stock for recent
periods.
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Relative Contribution Analysis |
PJSC performed a relative contribution analysis to compare the
historical and projected financial operating contributions of
each company relative to enterprise and equity value
contributions of each company to the combined company based on
the implied per share merger consideration for May and the
closing price for Federated common stock as of February 25,
2005.
PJSC calculated the relative net sales, EBITDA, EBIT and net
income contributions of May and Federated based on actual
historical results and projected results based on Base Case of
May and a set of
72
estimates of Federated based on Federated managements
guidance relating to net sales, comparable store sales growth,
EBITDA and E.P.S. in fiscal year 2005 and fiscal year 2006 and
E.P.S. growth rate, which we refer to in this joint proxy
statement/ prospectus as the Guidance Case. PJSC compared the
actual net income contribution of each company for fiscal years
2002, 2003 and 2004 and the projected net income contribution of
each company for fiscal years 2005, 2006 and 2007 to the equity
value contributions of each company to the combined company
based on the implied per share merger consideration for May and
the closing price for Federated common stock as of
February 25, 2005. PJSC noted that the equity value
contribution of May at the implied per share merger
consideration exceeded the net income contribution of May for
all periods analyzed. PJSC also compared actual net sales,
EBITDA and EBIT (pro forma for May in 2004) for fiscal years
2002, 2003 and 2004 and projected net sales, EBITDA and EBIT for
fiscal years 2005, 2006 and 2007 to contributions of each
company to the enterprise value contributions of each to the
combined company based on the implied per share merger
consideration for May common stock and the closing price for
Federated common stock as of February 25, 2005.
PJSC noted that the percentage enterprise value contribution of
May at the implied per share merger consideration exceeded each
of the percentage net sales, EBITDA and EBIT contributions of
May for all periods analyzed and that the percentage equity
value contribution of May at the implied per share merger
consideration exceeded the percentage net income contributions
of May for all periods analyzed, indicating, in all cases, a
higher May valuation relative to its net sales, EBITDA, EBIT and
net income contributions to the combined company.
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Historical Exchange Ratio Analysis |
PJSC prepared an historical exchange ratio analysis, which
compares the exchange ratio determined by dividing the price of
May common stock by the price of Federated common stock price,
to evaluate the exchange ratio implied by the per share merger
consideration, assuming an all stock deal, relative to the
historic exchange ratio.
PJSC compared the historical per share prices of May common
stock and Federated common stock for the one-year period prior
to February 25, 2005, in order to determine the implied
average exchange ratio that existed for the period. The implied
exchange ratio of 0.624x shares of Federated common stock for
each share of May common stock (based on the implied per share
merger consideration divided by Federateds closing stock
price of $56.79 per share on February 25, 2005) is
greater than the average exchange ratio of 0.571x for the
one-year period prior to February 25, 2005.
PJSC noted that using such one year average exchange ratio of
.571 and the price of Federated common stock of $56.79 would
have implied a value per share of May common stock of $32.43,
well below the implied per share merger consideration, which
suggested that the implied exchange ratio of the merger was
greater than the historical average exchange ratio for such
period.
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Pro Forma Merger Analysis |
In view of the fact that holders of May common stock would
receive shares of Federated common stock as part of the merger
consideration, PJSC analyzed the pro forma earnings per share of
Federated common stock as a result of the merger.
PJSC analyzed the pro forma impact of the merger on
Federateds E.P.S. in fiscal years ended January 31,
2007, 2008 and 2009. PJSC compared the projected stand alone
earnings per share of Federated common stock based on the
Guidance Case, on a standalone basis, to the pro forma earnings
per share of the common stock of the combined company based on
the Guidance Case of Federated and the Base Case of May. This
analysis took into account certain adjustments for lost sales
from stores sold and sales disruptions based on guidance from
management of Federated. This analysis was performed both with
and without synergies in 2007, 2008 and 2009 based on guidance
from management of Federated. This analysis suggested that,
excluding synergies, the merger would be dilutive in 2007 and
2008 and accretive in 2009 to holders of Federated common stock.
73
PJSC noted that, including the synergies, this analysis
suggested that the merger would be accretive on an earnings per
share basis in 2007, 2008 and 2009 to holders of Federated
common stock.
In arriving at PJSCs opinion, PJSC performed a variety of
financial analyses, the material portions of which are
summarized above. The preparation of a fairness opinion is a
complex process involving various determinations as to the most
appropriate and relevant methods of financial analyses and the
application of those methods to the particular circumstances
and, therefore, such an opinion is not necessarily susceptible
to a partial analysis or summary description. In arriving at its
opinion, PJSC did not attribute any particular weight to any
analysis or factor considered by it, but rather made qualitative
judgments as to significance and relevance of each analysis and
factor. Accordingly, PJSC believes that its analysis must be
considered as a whole and that selecting portions of its
analysis, without considering all such analyses, could create an
incomplete view of the process underlying PJSCs opinion.
In performing its analyses, PJSC relied on numerous assumptions
made by the management of May and Federated and made numerous
judgments of its own with regard to current and future industry
performance, general business and economic conditions and other
matters, many of which are beyond the control of May and
Federated. Actual values will depend upon several factors,
including changes in interest rates, dividend rates, market
conditions, general economic conditions and other factors that
generally influence the price of securities. The analyses
performed by PJSC are not necessarily indicative of actual
values or actual future results, which may be significantly more
or less favorable than suggested by such analyses. Such analyses
were prepared solely as a part of PJSCs analysis of the
fairness from a financial point of view of the consideration
proposed to be received by the holders of May common stock in
connection with the merger and were provided to Mays board
of directors in connection with the delivery of PJSCs
opinion. The analyses do not purport to be appraisals or
necessarily reflect the prices at which businesses or securities
might actually be sold, which are inherently subject to
uncertainty. Because such analyses are inherently subject to
uncertainty, neither of May or PJSC or any other person assumes
responsibility for their accuracy. With regard to the comparable
public company analysis and the comparable transactions analysis
summarized above, PJSC selected comparable public companies on
the basis of various factors for reference purposes only;
however, no public company or transaction utilized as a
comparison is fully comparable to May or the merger.
Accordingly, an analysis of the foregoing was not mathematical;
rather, it involves complex considerations and judgments
concerning differences in financial and operating
characteristics of the comparable companies and other factors
that could affect the acquisition or public trading value of the
comparable companies and transactions to which May and the
merger were being compared. The merger consideration in the
merger was determined through arms-length negotiations
between May and Federated and was approved by Mays board
of directors. PJSC did not recommend any specific merger
consideration to May or that any given merger consideration
constituted the only appropriate merger consideration for the
merger. In addition, as described elsewhere in this joint proxy
statement/ prospectus, PJSCs opinion was one of many
factors taken into consideration by Mays board of
directors in evaluating the merger. Consequently, the PJSC
analyses described above should not be viewed as determinative
of the opinion of Mays board of directors or management
with respect to the merger.
As part of its investment banking activities, PJSC is regularly
engaged in the evaluation of businesses and their securities in
connection with mergers and acquisitions, restructurings and
valuations for corporate or other purposes. Mays board of
directors selected PJSC to deliver an opinion with respect to
the consideration proposed to be received by the holders of May
common stock in connection with the merger on the basis of such
experience.
The financial advisory services PJSC provided to May in
connection with the merger were limited to the delivery of
PJSCs opinion.
Under the terms of its engagement with May, PJSC received a fee
of $1,650,000 for its financial advisory services in connection
with the merger, all of which was payable upon the delivery of
PJSCs opinion. In addition, May has also agreed to
reimburse PJSC for its out-of-pocket expenses, including fees and
74
disbursements of its counsel, incurred in connection with its
engagement and to indemnify PJSC and certain related persons
against liabilities and expenses, including liabilities under
the federal securities laws, relating to or arising out of its
engagement as financial advisor to May.
PJSC has not received compensation during the last two years for
providing investment banking services to May or Federated.
Opinion of Federateds Financial Advisor
Goldman, Sachs & Co. delivered an oral opinion to
Federateds board of directors, subsequently confirmed in
writing, to the effect that, as of February 27, 2005, and
based upon and subject to the factors and assumptions set forth
in the opinion, the $17.75 in cash and 0.3115 shares of
Federated common stock to be paid by Federated for each
outstanding share of May common stock pursuant to the merger
agreement was fair from a financial point of view to Federated.
The full text of the written opinion of Goldman Sachs, dated
February 27, 2005, which sets forth the assumptions made,
procedures followed, matters considered, and limitations on the
review undertaken in connection with the opinion, is attached as
Annex D. Goldman Sachs provided its opinion for the
information and assistance of Federateds board of
directors in connection with its consideration of the merger.
Goldman Sachs opinion is not a recommendation as to how
any holder of Federated common stock should vote with respect to
the merger. We encourage you to read the opinion in its entirety.
In connection with rendering the opinion described above and
performing its related financial analyses, Goldman Sachs
reviewed, among other things:
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the merger agreement; |
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annual reports to stockholders and Annual Reports on
Form 10-K of Federated and May for the five fiscal years
ended January 31, 2004; |
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certain interim reports to stockholders and Quarterly Reports on
Form 10-Q of Federated and May; |
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certain other communications from Federated and May to their
respective stockholders; |
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certain internal financial analyses and forecasts for Federated
prepared by its management; and |
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certain financial analyses and forecasts for May prepared by the
management of Federated which are referred to as the Forecasts,
including certain cost savings and operating synergies projected
by the management of Federated to result from the merger, which
are referred to as the synergies. |
Goldman Sachs held discussions with members of the senior
management of Federated regarding their assessment of the
strategic rationale for, and the potential benefits of, the
merger. Goldman Sachs also held discussions with members of the
senior management of Federated and May regarding the past and
current business operations, financial condition and future
prospects of Federated and May.
In addition, Goldman Sachs:
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reviewed the reported price and trading activity for the shares
of Federated common stock and the shares of May common stock; |
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compared certain financial and stock market information for
Federated and May with similar information for certain other
companies the securities of which are publicly traded; |
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reviewed the financial terms of certain recent business
combinations in the department store and retail industry
specifically and in other industries generally; and |
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performed such other studies and analyses, and considered such
other factors, as Goldman Sachs considered appropriate. |
Goldman Sachs has relied upon the accuracy and completeness of
all of the financial, accounting, legal, tax and other
information discussed with or reviewed by it and has assumed
such accuracy and completeness
75
for purposes of rendering its opinion. In that regard, Goldman
Sachs has assumed with the consent of Federated that the
Forecasts, including the synergies, were reasonably prepared on
a basis reflecting the best currently available estimates and
judgments of Federated. In addition, Goldman Sachs did not make
an independent evaluation or appraisal of the assets and
liabilities (including any contingent, derivative or
off-balance-sheet assets and liabilities and the credit card
assets as to which Federated has announced that it is exploring
various alternatives) of Federated or May or any of their
respective subsidiaries, and Goldman Sachs was not furnished
with any such evaluation or appraisal. Goldman Sachs also
assumed that all governmental, regulatory or other consents and
approvals necessary for the consummation of the merger will be
obtained without any adverse effect on Federated or May, or the
expected benefits of the merger, in any way meaningful to
Goldman Sachs analyses.
The following is a summary of the material financial analyses
presented by Goldman Sachs on February 25, 2005, and
February 27, 2005, to Federateds board of directors
in connection with rendering its opinion. The following summary,
however, does not purport to be a complete description of the
financial analyses performed by Goldman Sachs. Goldman Sachs
believes that each of these analyses was relevant to its
examination and conclusion as to whether the consideration to be
paid by Federated for each outstanding share of May common stock
pursuant to the merger agreement was fair from a financial point
of view to Federated. The measures chosen for analysis were
selected by Goldman Sachs as customary and relevant to an
acquisition utilizing a combination of cash and common stock of
the acquiring company. The order of analyses described does not
represent the relative importance or weight given to those
analyses by Goldman Sachs. Some of the summaries of the
financial analyses include information presented in tabular
format. The tables must be read together with the full text of
each summary and are alone not a complete description of Goldman
Sachs financial analyses. Except as otherwise noted, the
following quantitative information, to the extent that it is
based on market data, is based on market data as it existed on
or before February 27, 2005, and is not necessarily
indicative of current market conditions.
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Transaction Premium Analysis |
Goldman Sachs calculated the implied premium over the market
price at various points for each share of May common stock that
would be received by May stockholders. In these calculations,
Goldman Sachs utilized an implied transaction price per share of
$35.50. This price was calculated using a fixed exchange ratio
of 0.3115 Federated common shares for each May share of common
stock, fixed cash consideration of $17.75 per share of May
common stock and the share price of $56.99 of Federated common
stock based on the ten-day average trading price as of
February 25, 2005, (the last trading day prior to the
announcement of the proposed merger). Goldman Sachs compared the
implied transaction price per share of $35.50 with the following
trading prices for May common stock:
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the closing price of $27.73 on January 13, 2005 (the last
full trading day prior to any speculation regarding the
resignation of Mays chief executive officer and a
potential transaction between Federated and May); |
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the average trading price of $29.03 over the one-year period
prior to January 13, 2005; and |
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the twelve-month high trading price of $36.31. |
The results of Goldman Sachs calculations are reflected
below:
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Implied Premium Based | |
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on Implied Transaction | |
May Stock Price on: |
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Price per Share of $35.50 | |
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January 13, 2005
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28.0 |
% |
One-year average
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22.3 |
% |
Twelve-month High
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(2.2 |
)% |
76
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Implied Transaction Multiples |
The implied transaction multiples represent the ratio of the
implied purchase price (expressed as either the implied fully
diluted equity consideration or the implied enterprise value) to
various financial measures, including net sales, earnings before
interest, taxes, depreciation and amortization, or EBITDA, and
net income. In performing this analysis, Goldman Sachs first
derived the implied fully diluted equity consideration and the
implied enterprise value in the merger based on the implied
transaction price per share of $35.50 in the merger. The fully
diluted equity consideration amount was derived by multiplying
the implied transaction price per share of $35.50 by the number
of fully diluted shares of May common stock outstanding as of
February 25, 2005, assuming the conversion of Mays
convertible preferred shares subject to its employee stock
option plan, referred to as the ESOP, based on information
provided by May management. The enterprise value of May was
derived by adding the fully diluted equity consideration to
Mays net debt of $5,925 million, as estimated for May
as of July 31, 2005 (the estimated closing date of the
merger), by Federated management. Net debt means total debt less
cash and cash equivalents.
Goldman Sachs also calculated the fully diluted May equity
consideration amount based on the implied transaction price per
share of $35.50 as a multiple of the 2005 and 2006 net
income for May based on estimates as of February 12, 2005,
prepared by Federated management.
Goldman Sachs also calculated the May enterprise value based on
the implied transaction price per share of $35.50 as a multiple
of the following historical and estimated financial results for
May:
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2004 net sales based on publicly available information; |
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Federated managements estimates of May net sales for 2005
and 2006; |
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2004 EBITDA based on publicly available information; |
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Federated managements estimates of May EBITDA for 2005 and
2006; |
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2004 earnings before interest and taxation, or EBIT, based on
publicly available information; and |
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Federated managements estimates of May EBIT for 2005 and
2006. |
All 2004 financial results for May give effect to a full year
pro forma adjustment for Mays acquisition of Marshall
Fields from Target Corporation in July 2004. In addition,
all net sales amounts used for purposes of the foregoing
calculations exclude leased and licensed department income. Each
year referred to relates to the fiscal year ending in January of
the following year.
The results of these analyses are as follows:
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Implied Transaction | |
Fully Diluted Equity Consideration as a Multiple of: |
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Price per Share: | |
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2005 estimated net income
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17.4x |
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2006 estimated net income
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15.0x |
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Enterprise Value as a Multiple of:
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2004 net sales
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1.1x |
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2005 estimated net sales
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1.1x |
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2006 estimated net sales
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1.0x |
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2004 EBITDA
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8.5x |
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2005 estimated EBITDA
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7.9x |
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2006 estimated EBITDA
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7.5x |
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2004 EBIT
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13.1x |
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2005 estimated EBIT
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11.8x |
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2006 estimated EBIT
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10.9x |
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Discounted Cash Flow Analysis |
Goldman Sachs performed a discounted cash flow analysis with
respect to May of the after-tax cash flow projected to be
available for use at the discretion of Mays management, or
free cash flow. This analysis is designed to represent the
present value of a company based on its projected future cash
flows. The discounted cash flow analysis gives effect to the
synergies projected to result from the merger and related
one-time costs. Goldman Sachs performed this analysis based on
projections for May as prepared by Federated management and
publicly available information. For the purposes of this
analysis, Goldman Sachs utilized outstanding share and option
information for May as provided by May management and assumed
the conversion of all of Mays ESOP preference shares into
common shares and the exercise of all in-the-money options.
In performing this discounted cash flow analysis, Goldman Sachs
used estimates of Mays free cash flows for the period from
2005 through 2009 and estimates of free cash flows from
synergies projected to result for the period from 2005 through
2014, in each case prepared by Federated management, and applied
discount rates ranging from 8.0% to 11.0% and terminal EBITDA
multiples ranging from 6.0x to 7.0x. Goldman Sachs derived
implied equity value indications ranging from $32.47 to
$45.46 per share with respect to May common stock.
A pro forma earnings per share, referred to as EPS, analysis
involves the review of the projected earnings for the combined
company, taking into account the effects of the merger. Goldman
Sachs compared, for each of 2006 (the first full-year following
projected completion of the merger), 2007 and 2008, the
estimated EPS of Federated on a standalone basis with the
estimated EPS of the combined company on the one hand, excluding
one-time costs and, on the other hand, including one-time costs,
in each case, using estimates prepared by Federated management
for each of Federated, May, and the synergies projected to
result from the merger and an illustrative asset integration
strategy involving the closing of stores. Goldman Sachs prepared
these analyses based on a total consideration of $35.50 per
share of May common stock to be received by May stockholders,
consisting of $17.75 in cash and 0.3115 shares of the
common stock of Federated.
Based on the foregoing and a merger closing date of
July 31, 2005, and without giving effect to the one-time
costs, the merger would be dilutive to Federateds EPS in
2006 and somewhat accretive in each of 2007 and 2008. In giving
effect to those one-time costs, the proposed merger would be
significantly dilutive to Federateds EPS in 2006, dilutive
in 2007 and somewhat accretive in 2008.
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Unlevered Internal Rate of Return Analysis |
Goldman Sachs performed an analysis of the implied internal
rates of return that could theoretically be realized by an
acquirer of May by utilizing projections of Mays free cash
flows for 2005 through 2014 as estimated by Federateds
management and based on publicly available information. These
projections included the synergies projected to result from the
merger and an illustrative asset integration strategy involving
the closing of stores. Goldman Sachs calculated implied rates of
return assuming an acquisition of May as of July 31, 2005,
based on a range of purchase prices per share of May common
stock of $35.00 to $36.00 and a disposition of May by the
acquirer at the end of 2014 at aggregate prices equal to 6.0x,
6.5x and 7.0x projected 2014 EBITDA. Based on the foregoing
assumptions, Goldman Sachs calculated that an acquirer of May
would realize implied internal rates of return ranging from 9.6%
to 11.1%.
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Selected Companies Analysis |
Goldman Sachs reviewed selected publicly available financial
information, ratios and multiples for May and compared that data
to corresponding data for the following selected companies in
the department store and retail industry:
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Dillards, Inc. |
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Federated Department Stores, Inc. |
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Nordstrom, Inc. |
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The Neiman Marcus Group, Inc. |
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J.C. Penney Company, Inc. |
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Saks Incorporated |
Although none of the selected companies are directly comparable
to May, the companies included were chosen because they are
publicly traded companies with operations that, for purposes of
analysis, may be considered similar to the operations of May.
The equity market capitalization for the selected companies
utilized by Goldman Sachs was calculated by multiplying each
companys closing stock price as of February 25, 2005,
by the number of that companys fully diluted shares
outstanding. The equity market capitalization for May was
calculated based on the $35.50 per share implied
transaction price to be received by May stockholders in the
merger. Each companys enterprise value was calculated by
adding to its diluted equity market capitalization the amount of
its net debt as of the end of its most recently completed fiscal
quarter. Historical financial results utilized by Goldman Sachs
for purposes of this analysis were based upon information
contained in the applicable companys latest publicly
available financial statements as of February 25, 2005.
Estimates of future results used by Goldman Sachs in this
analysis were calendarized and based on median estimates
provided by Institutional Brokers Estimate System, referred to
as IBES (a data service that compiles estimates issued by
securities research analysts). Certain historical and estimated
results were adjusted to reflect or exclude the pro forma effect
of acquisitions. Goldman Sachs analysis of the selected
companies compared the following to the results for May:
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the February 25, 2005, closing stock price as a percentage
of the 52-week high stock price; |
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enterprise value as a multiple of (1) sales for the
twelve-month period completed as of the end of the quarter most
recently completed prior to the announcement of the transaction,
referred to as the LTM Period, (2) EBITDA for the LTM
Period, (3) EBITDA for 2005, (4) EBITDA for 2006, and
(5) EBIT for the LTM Period; |
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the February 25, 2005, closing stock price as a multiple of
estimated 2005 and 2006 EPS, referred to as the 2005 and 2006 P/
E; |
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five-year EPS compounded annual growth rate, referred to as the
5-Year EPS CAGR, based on IBES median estimates; |
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the 2006 P/ E multiple as a multiple of 5-Year EPS CAGR; |
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EBITDA and EBIT margins for the LTM Period; and |
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dividend yield. |
79
The following table compares the multiples and percentages
referred to above calculated for the selected companies with
comparable information derived by Goldman Sachs with respect to
May based on the implied transaction price per share of $35.50
payable in the merger:
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May | |
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Selected Companies | |
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Based on Implied | |
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Transaction Price per | |
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High | |
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Low | |
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Mean | |
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Median | |
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Share of $35.50 | |
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February 25, 2005 closing stock price as a percentage of
the 52-week high stock price (except as noted for May)
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100 |
% |
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87 |
% |
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95 |
% |
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97 |
% |
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98 |
% |
Enterprise value to LTM Period Sales
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1.2 |
x |
|
|
0.5 |
x |
|
|
0.8 |
x |
|
|
0.8 |
x |
|
|
1.1 |
x |
Enterprise value to LTM Period EBITDA
|
|
|
9.5 |
x |
|
|
5.9 |
x |
|
|
7.8 |
x |
|
|
7.9 |
x |
|
|
8.6 |
x |
Enterprise value to 2005 EBITDA
|
|
|
8.6 |
x |
|
|
5.9 |
x |
|
|
7.3 |
x |
|
|
7.1 |
x |
|
|
8.1 |
x |
Enterprise value to 2006 EBITDA
|
|
|
8.1 |
x |
|
|
5.9 |
x |
|
|
6.8 |
x |
|
|
6.5 |
x |
|
|
7.4 |
x |
Enterprise value to LTM Period EBIT
|
|
|
16.2 |
x |
|
|
8.7 |
x |
|
|
12.3 |
x |
|
|
11.5 |
x |
|
|
13.2 |
x |
2005 P/ E
|
|
|
24.5 |
x |
|
|
12.3 |
x |
|
|
17.0 |
x |
|
|
15.2 |
x |
|
|
17.3 |
x |
2006 P/ E
|
|
|
20.2 |
x |
|
|
11.4 |
x |
|
|
14.7 |
x |
|
|
13.5 |
x |
|
|
15.4 |
x |
5-Year EPS CAGR
|
|
|
13.0 |
% |
|
|
5.0 |
% |
|
|
9.3 |
% |
|
|
9.6 |
% |
|
|
7.0 |
% |
2006 P/ E to 5-Year EPS CAGR
|
|
|
4.0 |
x |
|
|
1.1 |
x |
|
|
1.8 |
x |
|
|
1.2 |
x |
|
|
2.2 |
x |
LTM Period EBITDA margin
|
|
|
14.3 |
% |
|
|
7.2 |
% |
|
|
10.5 |
% |
|
|
10.7 |
% |
|
|
12.6 |
% |
LTM Period EBIT margin
|
|
|
10.4 |
% |
|
|
3.2 |
% |
|
|
7.2 |
% |
|
|
8.1 |
% |
|
|
8.2 |
% |
Dividend yield
|
|
|
1.1 |
% |
|
|
0.0 |
% |
|
|
0.8 |
% |
|
|
0.9 |
% |
|
|
2.8 |
% |
Goldman Sachs calculated the implied exchange ratios of May
common stock to Federated common stock based on the average
closing share prices of May common stock and Federated common
stock for the three-year and one-year periods ended
February 24, 2005 (the last trading day prior to the
presentation Goldman Sachs made to the Federated board of
directors on February 25, 2005), and on the closing share
prices of May common stock and Federated common stock on
January 13, 2005, the last full trading day prior to any
speculation regarding the resignation of Mays chief
executive officer and a potential transaction between Federated
and May. Goldman Sachs also performed this analysis after taking
into account the 50% cash component of the consideration to be
paid for each share of May common stock as of February 24,
2005. This analysis compared the closing prices as if all of the
merger consideration, or half of the merger consideration, were
to be paid in shares of Federated common stock. The following
table reflects the results of this analysis:
|
|
|
|
|
|
|
|
|
|
|
Exchange Ratio | |
|
|
| |
May Stock Price Over or on: |
|
100% Stock | |
|
50% Stock | |
|
|
| |
|
| |
3 Year Average
|
|
|
0.68x |
|
|
|
0.34x |
|
1 Year Average
|
|
|
0.57x |
|
|
|
0.29x |
|
January 13, 2005
|
|
|
0.48x |
|
|
|
0.24x |
|
|
|
|
Selected Transactions Analysis |
Goldman Sachs analyzed certain publicly available information
relating to selected business combination transactions involving
companies in the department store and retail industry announced
between December 1993 and January 2005. These transactions
(listed by acquirer/target and month and year of announcement)
included:
|
|
|
|
|
Jones Apparel Group, Inc./ Barneys New York, Inc.
(November 2004) |
|
|
|
K-Mart Holding Corporation/ Sears, Roebuck and Co. (November
2004) |
80
|
|
|
|
|
Investor Group consisting of Sun Capital Partners, Inc.,
Cerberus Capital Management, L.P., Lubert-Adler Real Estate
Fund IV, L.P. and Klaff Partners, L.P./ Mervyns LLC
(July 2004) |
|
|
|
The May Department Stores Company/ Marshall Fields
division of Target Corporation (June 2004) |
|
|
|
Proffitts, Inc./ Saks Holdings, Inc. (July 1998) |
|
|
|
Dillards, Inc./ Mercantile Stores Company, Inc. (May 1998) |
|
|
|
Proffitts, Inc./ Carson Pirie Scott & Co.
(October 1997) |
|
|
|
Proffitts, Inc./ G.R. Herbergers, Inc. (November
1996) |
|
|
|
Proffitts, Inc./ Parisian, Inc. (July 1996) |
|
|
|
Proffitts, Inc./ Younkers, Inc. (October 1995) |
|
|
|
Federated Department Stores, Inc./ Broadway Stores, Inc. (August
1995) |
|
|
|
Federated Department Stores, Inc./ R.H. Macys &
Co., Inc. (December 1994) |
For each of the selected transactions, Goldman Sachs calculated
the implied enterprise value of the target company as a multiple
of the targets publicly reported EBITDA and sales, in each
case, for the last twelve months, or LTM, period ended
immediately prior to the announcement of the transaction (to the
extent that information was publicly available). Goldman Sachs
then compared the high, low, mean and median EBITDA and sales
multiples calculated for the selected transactions with similar
EBITDA and sales multiples calculated for the proposed merger
between Federated and May. For purposes of this analysis,
Goldman Sachs derived an implied enterprise value for May based
on:
|
|
|
(1) an implied transaction price of $35.25 per share
of May common stock, derived from (i) the closing price of
$57.39 of Federated common shares on February 16, 2005;
(ii) a fixed exchange ratio of 0.3070 Federated shares for
each share of May common stock; and (iii) fixed cash
consideration of $17.63 per share of May common stock; |
|
|
(2) a number of fully diluted outstanding May common
shares, which takes into account the number of outstanding
common shares issuable upon conversion of all May ESOP
preference shares and upon the exercise of all in-the-money May
options; and |
|
|
(3) net debt of May equal to approximately
$5,925 million as of July 31, 2005, the expected
closing date of the proposed merger, as estimated by Federated
management. |
The following table shows the results of this comparison which
takes into account the full pro forma effect of Mays
acquisition of Marshall Fields from Target Corporation in
July 2004:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selected Transactions | |
|
|
|
|
| |
|
|
Enterprise Value as a Multiple of: |
|
High | |
|
Low | |
|
Mean | |
|
Median | |
|
Proposed Transaction | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
EBITDA
|
|
|
20.1x |
|
|
|
5.9x |
|
|
|
10.7x |
|
|
|
9.4x |
|
|
|
8.5x |
|
Sales
|
|
|
1.5x |
|
|
|
0.4x |
|
|
|
0.8x |
|
|
|
0.7x |
|
|
|
1.1x |
|
|
|
|
Premium Analysis of Selected Transactions |
Using publicly available information, Goldman Sachs calculated
the premia paid in selected pending and completed cash-and-stock
business combination transactions announced since
January 1, 2000, in which all the targets shares are
being, or have been, acquired for consideration in excess of
$10 billion, 25% to 50% of which is paid in cash. These
transactions (listed by acquirer/target and date of
announcement) included:
|
|
|
|
|
The Procter & Gamble Company/ The Gillette Company
(January 28, 2005) |
|
|
|
Johnson & Johnson/ Guidant Corporation
(December 15, 2004) |
|
|
|
Sanofi-Synthelabo/ Aventis (January 26, 2004) |
81
|
|
|
|
|
Anthem Inc./ WellPoint Health Networks Inc. (October 27,
2003) |
|
|
|
Allianz Aktiengesellschaft/ Dresdner Bank AG (April 1, 2001) |
|
|
|
DB Investments consisting of Anglo American, the Oppenheimer
Family and the Botswana Government/ De Beers Consolidated Mines
(February 15, 2001) |
|
|
|
Deutsche Telekom AG/ VoiceStream Wireless Corporation
(July 24, 2000) |
|
|
|
HSBC Holdings PLC/ Credit Commercial de France (April 1,
2000) |
|
|
|
Tribune Company/ The Times Mirror Company (March 13, 2000) |
Goldman Sachs calculated the premia represented by the
transaction consideration in those transactions based on each
targets closing stock price one day, one week and four
weeks prior to announcement of the applicable transaction.
Goldman Sachs compared the high, low, mean and median premia
calculated for the selected transactions with the implied
premium based on the closing prices of May common stock on the
one day, one week and four weeks prior to:
(i) January 13, 2005, referred to as the undisturbed
price, and (ii) February 24, 2005, referred to as the
market price.
In performing this analysis, Goldman Sachs calculated an implied
enterprise value of May of $16,821 million as of
February 24, 2005, that was determined based on the same
assumptions enumerated in (1) through (3) under the
Selected Transactions Analysis described above.
The results of this analysis appear in the following tables:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selected Transaction | |
|
|
|
|
|
|
| |
|
|
Transaction | |
|
Percent | |
|
1 Day Prior to | |
|
1 Week Prior to | |
|
4 Weeks Prior to | |
|
|
Value | |
|
Cash | |
|
Announcement | |
|
Announcement | |
|
Announcement | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
(In millions) | |
|
|
|
|
|
|
|
|
High
|
|
$ |
65,657 |
|
|
|
40.0 |
% |
|
|
98.2 |
% |
|
|
84.2 |
% |
|
|
68.9 |
% |
Low
|
|
$ |
10,984 |
|
|
|
25.9 |
% |
|
|
0.3 |
% |
|
|
3.1 |
% |
|
|
13.1 |
% |
Mean
|
|
$ |
28,007 |
|
|
|
32.9 |
% |
|
|
23.7 |
% |
|
|
26.3 |
% |
|
|
35.1 |
% |
Median
|
|
$ |
19,656 |
|
|
|
33.7 |
% |
|
|
17.6 |
% |
|
|
21.3 |
% |
|
|
32.4 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proposed Transaction | |
|
|
Transaction | |
|
Percent | |
|
| |
|
|
Value | |
|
Cash | |
|
1 Day Prior to: | |
|
1 Week Prior to: | |
|
4 Weeks Prior to: | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
(In millions) | |
|
|
|
|
|
|
|
|
Undisturbed Price
|
|
$ |
16,821 |
|
|
|
50.0 |
% |
|
|
27.1 |
% |
|
|
24.9 |
% |
|
|
24.7 |
% |
Market Price
|
|
$ |
16,821 |
|
|
|
50.0 |
% |
|
|
3.4 |
% |
|
|
11.8 |
% |
|
|
6.3 |
% |
The preparation of a fairness opinion is a complex process and
is not necessarily susceptible to partial analysis or summary
description. Selecting portions of the analyses or of the
summary set forth above, without considering the analyses as a
whole, could create an incomplete view of the processes
underlying Goldman Sachs opinion. In arriving at its
fairness determination, Goldman Sachs considered the results of
all the analyses and did not attribute any particular weight to
any factor or analysis considered by it. Rather, Goldman Sachs
made its determination as to fairness on the basis of its
experience and professional judgment after considering the
results of all the analyses. No company or transaction used in
the above analyses as a comparison is directly comparable to
Federated or May or the proposed merger.
Goldman Sachs prepared these analyses for purposes of Goldman
Sachs providing its opinion to Federateds board of
directors as to the fairness from a financial point of view to
Federated of the $17.75 in cash and 0.3115 shares of
Federated common stock to be paid by Federated for each
outstanding share of May common stock pursuant to the merger
agreement. These analyses do not purport to be appraisals nor do
they necessarily reflect the prices at which businesses or
securities actually may be sold. Analyses based upon forecasts
of future results are not necessarily indicative of actual
future results, which may be significantly more or less
favorable than suggested by these analyses. Because these
analyses are inherently subject to uncertainty, being based upon
numerous factors or events beyond the control of the parties or
their respective
82
advisors, none of Federated, Goldman Sachs or any other person
assumes responsibility if future results are materially
different from those forecast. As described above, Goldman
Sachs opinion to Federateds board of directors was
one of many factors taken into consideration by Federateds
board of directors in making its determination to approve the
merger agreement.
Goldman Sachs and its affiliates, as part of their investment
banking business, are continually engaged in performing
financial analyses with respect to businesses and their
securities in connection with mergers and acquisitions,
negotiated underwritings, competitive biddings, secondary
distributions of listed and unlisted securities, private
placements and other transactions as well as for estate,
corporate and other purposes. Goldman Sachs has acted as
financial advisor to Federated in connection with, and has
participated in certain of the negotiations leading to, the
merger contemplated by the merger agreement. Goldman Sachs
expects to receive fees for its services in connection with the
merger, the principal portion of which is contingent upon
consummation of the merger, and Federated has agreed to
reimburse Goldman Sachs expenses and indemnify Goldman
Sachs against certain liabilities arising out of Goldman
Sachs engagement. Goldman Sachs also may provide
investment banking and other services to Federated, May and
their respective affiliates in the future for which Goldman
Sachs may receive compensation.
In addition, Goldman Sachs is a full service securities firm
engaged, either directly or through its affiliates, in
securities trading, investment management, financial planning
and benefits counseling, risk management, hedging, financing and
brokerage activities for both companies and individuals. In the
ordinary course of these activities, Goldman Sachs and its
affiliates may provide such services to Federated, May and their
respective affiliates, may actively trade the debt and equity
securities (or related derivative securities) of Federated and
May for their own account and for the accounts of their
customers and may at any time hold long and short positions of
such securities.
Federated selected Goldman Sachs as its financial advisor
because it is an internationally recognized investment banking
firm that has substantial experience in transactions similar to
the merger. Pursuant to a letter agreement, dated
February 25, 2005, Federated engaged Goldman Sachs to act
as its financial advisor in connection with a possible
acquisition of May. Pursuant to the terms of this letter
agreement, Federated agreed to pay Goldman Sachs a transaction
fee of $27,500,000, $2,750,000 of which was payable upon
Federateds entering into a merger agreement to acquire May
and $24,750,000 of which is payable upon consummation of the
merger. Federated has also agreed to reimburse Goldman Sachs for
its reasonable expenses, including attorneys fees and
disbursements, and to indemnify Goldman Sachs against various
liabilities, including various liabilities under the federal
securities laws.
Interests of May Directors and Executive Officers in the
Merger
Mays executive officers and members of the May board of
directors, in their capacities as such, have financial interests
in the merger that are in addition to or different from their
interests as stockholders of May generally. Mays board of
directors was aware of these interests and considered them,
among other matters, in approving the merger agreement and the
transactions contemplated thereby.
|
|
|
Federated Board of Directors After the Merger |
Under the merger agreement, Federated has agreed to select two
members of Mays board of directors who are recommended by
the NCG Committee of Federateds board of directors and, if
those individuals are willing to serve, Federated will use its
reasonable best efforts to appoint those individuals to
Federateds board of directors as of the effective time of
the merger.
|
|
|
Executive Employment and Severance Agreements |
Under the merger agreement, May may, in the ordinary course of
business, continue to enter into employment agreements or agree
to employment agreement extensions, subject to certain
limitations.
May has entered into employment agreements with approximately
375 of its current employees, including all of its current
executive officers. Each of these agreements provides, among
other things, for a non-
83
competition covenant that is to be in effect for six months, one
year or two years, as the case may be, after termination of
employment. During the non-competition period, the executive is
to be paid an amount equal to his or her base salary (we refer
to this payment below as the non-compete payment).
May has entered into severance agreements with approximately 38
of its current employees, including each of its current
executive officers. Each of these agreements provides for cash
severance and other benefits in the event that the
individuals employment is terminated under certain
circumstances as of or within two years following a change
in control of May. For purposes of the severance
agreements, a change in control will occur at the
effective time of the merger. Severance benefits under the
agreements with the executive officers currently include:
(i) a lump sum in cash equal to (a) 300% of the
greater of the executives base salary at the time of
termination or immediately prior to the change in control, plus
(b) 300% of the executives target bonus with respect
to the year in which the change in control occurs;
(ii) continuation of life and health insurance benefits for
three years; and (iii) for executive officers, a cash
payment, in consideration of the cancellation of all outstanding
stock options, that is equal to the spread of those
options at the time of termination. Each of the severance
agreements also provides that the executive will receive the
non-compete payment. Each of the severance agreements further
provides that if, after taking into account the 20% golden
parachute excise tax that may be applied to the executives
payments and benefits under his or her severance agreement and
other May plans and programs, the executives net benefits
would be less than the executives safe harbor
amount under the Internal Revenue Codes so-called
golden parachute rules, May will reduce the
executives cash severance payments so that the total
change in control-related payments and benefits paid to the
executive will not exceed the executives safe harbor
amount. Mr. Dunhams agreement provides that if the
reduction described in the preceding sentence is not applicable,
May will pay to Mr. Dunham 50% of the amount that would be
otherwise necessary to make Mr. Dunham whole with respect
to the excise tax.
Under the merger agreement, May may amend the severance
agreements to eliminate the mandatory cash-out of options and to
clarify that certain fringe benefits to which the executive is
entitled under the executives employment agreement
immediately before the termination date will be provided through
the end of the term of the employment agreement, as though
employment had not been terminated, provided that this results
in no duplication of benefits to be provided under the
executives severance agreement.
The table below lists the estimated aggregate cash severance and
non-compete payment to which each of Mays executive
officers named in the Summary Compensation Table on
page 155 other than Mr. Kahn, Mays former chief
executive officer (we will refer to these five individuals as
the named executive officers), would be entitled
under his employment and severance agreements if the executive
officers employment with May was terminated as of the
effective time of the merger under circumstances entitling the
executive officer to the non-compete payment and to severance
under the executive officers severance agreement. We have
also included the aggregate amount of cash severance and
non-compete payments that would be payable under these
circumstances to all of Mays executive officers as a group.
|
|
|
|
|
|
|
Cash Severance | |
|
|
and Non-Compete | |
Name |
|
Payment | |
|
|
| |
Mr. Dunham
|
|
$ |
9,372,500 |
|
Mr. Wolfe
|
|
$ |
6,120,000 |
|
Mr. McNamara
|
|
$ |
5,678,000 |
|
Mr. Fingleton
|
|
$ |
5,202,000 |
|
Mr. Levitt
|
|
$ |
4,726,000 |
|
All executive officers as a group (13 persons)
|
|
$ |
46,806,300 |
|
Under the merger agreement, May may make grants of equity awards
in fiscal 2005 and 2006 (if the merger is not consummated during
fiscal 2005) in the ordinary course of business, subject to
certain limitations.
84
All outstanding stock options and restricted stock awards
granted by May prior to February 27, 2005, will become
immediately vested upon approval of the merger agreement by
Mays stockholders. Stock options and restricted stock
awards granted by May on or after February 27, 2005, will
become immediately vested upon the effective time of the merger.
May stock options that are outstanding immediately prior to the
effective time of the merger will be converted into options to
purchase Federated common stock (as more fully described in the
section entitled The Merger Agreement
Covenants and Agreements May Stock Options,
beginning on page 108), which options will be otherwise
subject to their terms. May restricted stock awards will be
converted, along with all other outstanding shares of May common
stock, into the right to receive the merger consideration, as
described in the section entitled The Merger
Agreement beginning on page 95.
The following table lists, with respect to the named executive
officers, all of Mays executive officers as a group, and
all of Mays non-management directors as a group, the
number of (i) unvested options to purchase May common
stock, along with the weighted average exercise price of such
options, and (ii) restricted shares of May common stock,
all of which will become vested as a result of either the
approval of the merger agreement by Mays stockholders or
the consummation of the merger. The information shown on this
table is based on the equity awards outstanding as of
May 20, 2005.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of Shares | |
|
Weighted Average | |
|
|
|
|
Subject to | |
|
Exercise Price of | |
|
Number of | |
Name |
|
Unvested Options | |
|
Unvested Options | |
|
Restricted Shares | |
|
|
| |
|
| |
|
| |
Mr. Dunham
|
|
|
236,250 |
|
|
$ |
30.428 |
|
|
|
100,000 |
|
Mr. Wolfe
|
|
|
90,000 |
|
|
$ |
31.185 |
|
|
|
65,000 |
|
Mr. McNamara
|
|
|
108,750 |
|
|
$ |
31.151 |
|
|
|
100,000 |
|
Mr. Fingleton
|
|
|
90,000 |
|
|
$ |
31.185 |
|
|
|
80,000 |
|
Mr. Levitt
|
|
|
87,500 |
|
|
$ |
30.985 |
|
|
|
45,000 |
|
All executive officers as a group (13 persons)
|
|
|
828,450 |
|
|
$ |
30.988 |
|
|
|
511,805 |
|
All non-management directors as a group (8 persons)
|
|
|
N/A |
|
|
|
N/A |
|
|
|
49,990 |
|
|
|
|
Bonuses; Profit Sharing Plan |
Under the merger agreement, with respect to annual bonuses for
Mays fiscal year in which the effective time of the merger
occurs, if May determines that it would be impractical after the
effective time of the merger to continue to utilize one or more
of the goals applicable in determining all or any portion of a
May employees bonus for that year, May may authorize a
bonus for any employee who remains employed at the end of the
fiscal year, which bonus includes an amount that would have been
payable to the employee assuming performance under the
discontinued goal had been at target levels.
Under the merger agreement, if, within the 18-month period
following the effective time of the merger, a May employee is
terminated at the initiative of Federated or an affiliate of
Federated (including May and its subsidiaries) other than
for cause, the employee will be entitled to payment
of a pro-rata bonus with respect to the year of termination,
based on actual results or assuming performance at target levels
(depending upon the underlying performance goals). Each May
employee will have the right individually to enforce his or her
rights to this pro-rata bonus.
Under the merger agreement, with respect to Mays
tax-qualified Profit Sharing Plan, May may take such actions as
are necessary to (i) equitably adjust the goals applied for
purposes of determining matching contributions under the plan
for the year in which the effective time of the merger occurs
and (ii) based on this equitable adjustment, provide for a
pro-rata matching contribution (at a rate of at least
331/3%
for the portion of the plan year), up to the closing date of the
merger, to be allocated under the plan as if the then-current
plan year ended on the closing date of the merger.
85
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Other Severance Arrangements |
May has established the Severance Policy for Associates, which
provides for severance payments and benefits in the event that a
participating employee is terminated under qualifying
circumstances within 12 months following a change in
control. Those of Mays employees who are party to an
individual severance agreement (including all executive
officers) are not eligible to participate in this plan. The plan
currently provides that a change in control would occur when
Mays stockholders approve the merger agreement. Under the
merger agreement, May may modify the plan to provide that a
change in control will occur at the effective time of the merger
rather than upon approval of the merger agreement by Mays
stockholders, and to provide that the period during which a May
employee may become entitled to benefits under the plan will be
extended from 12 months to 24 months following the
effective time of the merger.
Under the merger agreement, Federated and its affiliates
(including May and its subsidiaries) will provide at least
30 days notice to any May employee whose employment
is terminated (other than for cause) as a result of
the merger at or within 18 months after the effective time
of the merger.
Deferred Compensation Plans. May maintains two
non-qualified deferred compensation plans, the Deferred
Compensation Plan for Directors, as amended (referred to below
as the Director Plan), which covers non-employee
directors of May, and the Deferred Compensation Plan (referred
to below as the Employee Plan), which covers certain
May employees, including all executive officers. The Director
Plan provides for deferrals of fees in either cash accounts,
which accrue interest, or stock units, each of which is
equivalent in value to one share of May common stock. All
amounts deferred, whether deferred in a cash account or a stock
unit account, will be paid in cash. The Employee Plan provides
for deferrals of salary and bonuses in either cash accounts,
which accrue interest, or in the form of stock units, each of
which is equivalent in value to one share of May common stock
and which may be paid in shares of May common stock or cash, as
determined by the plan administrator. Each of these plans
provides for a lump sum payout of the participants
accounts upon the occurrence of a change in control
which, under their current terms, would occur upon approval of
the merger agreement by Mays stockholders; provided, that
under the Director Plan, payment may not commence until the
directors board service is terminated. Each May director
will cease service on Mays board of directors as of the
effective time of the merger. All amounts deferred under the
Director Plan and the Employee Plan are vested.
Under the merger agreement, May may make certain modifications
to these non-qualified deferred compensation plans, to provide
that (i) a change in control under these plans
will occur at the effective time of the merger rather than upon
approval of the merger agreement by Mays stockholders and
(ii) if the merger agreement has been approved by
Mays stockholders but the merger has not been consummated
before December 28, 2005, then all outstanding balances
under the deferred compensation plans will be distributed prior
to the end of 2005, with stock units allocated under the plans
being valued for this purpose as if the closing date of the
merger were December 28, 2005.
86
The following table lists, with respect to the named executive
officers, Mays executive officers as a group, and
Mays non-management directors as a group, the amount of
cash or the number of stock units, as applicable, credited to
their accounts under the applicable May deferred compensation
plan as of May 20, 2005.
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Name |
|
Cash Account | |
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Stock Units | |
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| |
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| |
Mr. Dunham
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|
$ |
366,839 |
|
|
|
70,978 |
|
Mr. Wolfe
|
|
$ |
0 |
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|
|
0 |
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Mr. McNamara
|
|
$ |
1,895,970 |
|
|
|
43,092 |
|
Mr. Fingleton
|
|
$ |
1,046,540 |
|
|
|
18,109 |
|
Mr. Levitt
|
|
$ |
1,409,311 |
|
|
|
52,423 |
|
All executive officers as a group (13 persons)
|
|
$ |
5,819,901 |
|
|
|
217,055 |
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All non-management directors as a group (8 persons)
|
|
$ |
298,325 |
|
|
|
187,965 |
|
Supplementary Retirement Plan. May maintains the
Supplementary Retirement Plan, as amended, for the benefit of
certain May employees, including Mays executive officers.
Under the plan generally, participants may become entitled to
receive (i) a benefit based on 2% of the participants
final average pay, with credit for up to 25 years of
service, or, if greater, (ii) a benefit based on the
benefits to which the individual would have been entitled under
Mays tax-qualified retirement plans if certain Internal
Revenue Code limitations did not apply (referred to as the
Annual Minimum Benefit). Subject to certain transition rules
adopted in 1997, benefits under the plan generally vest when a
participant reaches age 60 with 10 years of service.
However, in the event that (i) within five years after a
change in control (currently defined under the plan
as stockholder approval of the merger agreement), a
participants employment is terminated other than for
cause, and (ii) as of the date of the change in control,
the participant is within five years of qualifying for benefits
under the Supplementary Retirement Plan, the participant is
entitled to receive a benefit computed as if the participant had
continued to be employed through the period ending on the
earliest date on which he or she would have qualified for
benefits, using the participants final average pay as
determined as of the date of the change in control or, if
greater, as of the date of termination, and crediting the
participant with additional years of service during this period.
Under the merger agreement, May may make the following
modifications to the Supplementary Retirement Plan:
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a change in control under the plan will occur at the
effective time of the merger, rather than at the time Mays
stockholders approve the merger agreement; |
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any plan participant who is employed with May or one of its
subsidiaries immediately prior to the effective time of the
merger, who has completed five or more years of service and who
is more than five years away from qualifying for benefits will
be fully vested in the Annual Minimum Benefit that the
participant has accrued as of the effective time of the merger; |
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eligibility for change in control-related benefits under the
plan will be extended to plan participants who (i) as of
the effective time of the merger have attained age 50 with
five or more years of service, (ii) otherwise qualify for
change in control related benefits, but whose employment
terminates after the effective time of the merger because of
death, or (iii) otherwise qualify for change in
control-related benefits, but whose employment terminates
because of death between the date on which Mays
stockholders approve the merger agreement and the closing date
of the merger, provided that the merger is consummated; |
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as of the effective time of the merger, any plan participant who
has not then completed five years of service will become vested
in the participants Annual Minimum Benefit accrued as of
the effective time of the merger, which vesting will occur upon
the completion of five years of service or upon the
participants termination of employment within
18 months following the effective time of the merger, if
the termination of employment is at the initiative of Federated
or an affiliate of Federated (including May and its
subsidiaries) other than for cause; and |
87
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benefits under the plan may commence on an actuarially reduced
basis prior to the date currently provided under the plan, but
in no event prior to age 55 (except in the case of survivor
benefits payable in respect of a deceased participant). |
Retiree Welfare Benefits. Under the merger agreement, May
and Federated have agreed to certain matters with respect to
Mays retiree welfare benefit programs, including the
following:
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Federated and its affiliates (including May and its
subsidiaries) will continue to provide to each May employee who
is currently retired and each May employee who retires on or
before the closing date of the merger (and eligible dependents),
all benefits to which the individual (and eligible dependents)
is entitled under Mays retiree welfare benefit plans
(e.g., post-retirement medical and life), without adverse
modifications, in each case for the life of the retiree and the
retirees spouse; |
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specified active May employees (including each of the May named
executive officers, two other executive officers and an
additional 18 executives) who, immediately prior to the
effective time of the merger, are eligible for retiree welfare
benefits under a May retiree welfare benefit plan will qualify
for retiree welfare benefits upon termination of employment for
any reason following the effective time of the merger, provided
that these benefits will generally not commence until the
employee reaches age 55, and Federated and its affiliates
(including May and its subsidiaries) will not adversely alter or
modify the requirement that Mays retiree welfare benefits
be provided for the life of any such retired May employee and
any such employees spouse, or require any premium payments
by any such retired May employee or any such employees
eligible dependents; and |
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the level of excess medical benefits to be provided to or on
behalf of the active May employees described above will not be
reduced from that currently provided under the applicable May
plan, and the level of medical benefits to which these May
employees become entitled will be no less favorable than is
provided from time to time to similarly situated employees of
Federated and its affiliates. |
Federated has also agreed that each affected May employee or
retiree will have the right individually to enforce his or her
rights to these retiree welfare benefits.
Store Discounts. Under the merger agreement, Federated
and its affiliates (including May and its subsidiaries) will
provide to each director and employee of May and its affiliates
who is currently retired or who retires prior to the effective
time of the merger, a lifetime discount on purchases in
accordance with Mays policy currently covering that
person. Federated has also agreed that each of these May
directors and employees will have the right individually to
enforce his or her rights as described in the immediately
preceding sentence. In addition, Federated has agreed that
Federated and its affiliates (including May and its
subsidiaries) will provide to each May director or employee who,
as of the effective time of the merger, has met the age and
service requirements for retirement and to each May employee or
director who meets those age and service requirements within
three years after the effective time of the merger, a lifetime
discount on purchases at any Federated store on a basis no less
favorable than is provided pursuant to the discount policy
covering that person at the time of retirement.
Accounting Treatment
The merger will be accounted for as a business combination using
the purchase method of accounting. Federated will be
the acquirer for financial accounting purposes.
Appraisal Rights of May Stockholders
Holders of record of May common stock who do not vote in favor
of adopting the merger agreement and the transactions
contemplated by the merger agreement, including the merger, and
who otherwise comply with the applicable provisions of
Section 262 of the Delaware General Corporation Law, which
we refer to throughout this joint proxy statement/ prospectus as
the DGCL, will be entitled to exercise appraisal rights under
Section 262 of the DGCL. A person having a beneficial
interest in shares of May common stock held of record in the
name of another person, such as a broker, bank or other nominee,
must act promptly to cause the
88
record holder to follow the steps summarized below properly and
in a timely manner to perfect appraisal rights.
The following discussion is not a complete statement of the
law pertaining to appraisal rights under the DGCL and is
qualified in its entirety by the full text of Section 262
of the DGCL, which is reprinted in its entirety as
Annex E and incorporated into this joint proxy
statement/ prospectus by reference. All references in
Section 262 of the DGCL and in this summary to a
shareholder, stockholder or
holder are to the record holder of the shares of May
common stock as to which appraisal rights are asserted.
Under Section 262 of the DGCL, holders of shares of May
common stock who follow the procedures set forth in
Section 262 of the DGCL will be entitled to have their May
common stock appraised by the Delaware Court of Chancery and to
receive payment in cash of the fair value of these
shares of May common stock, exclusive of any element of value
arising from the accomplishment or expectation of the merger,
together with a fair rate of interest, if any, as determined by
that court.
Under Section 262 of the DGCL, when a proposed merger is to
be submitted for approval at a meeting of stockholders, as in
the case of the approval of the merger agreement and the
transactions contemplated by the merger agreement, including the
merger, by May stockholders, the company, not less than
20 days prior to the meeting, must notify each of its
stockholders who was a stockholder on the record date for this
meeting with respect to shares for which appraisal rights are
available, that appraisal rights are so available, and must
include in this required notice a copy of Section 262 of
the DGCL.
This joint proxy statement/ prospectus constitutes the required
notice to the holders of these shares of May common stock and
the applicable statutory provisions of the DGCL are attached to
this joint proxy statement/ prospectus as Annex E.
Any May stockholder who wishes to exercise their appraisal
rights or who wishes to preserve their right to do so should
review the following discussion and Annex E
carefully, because failure to timely and properly comply with
the procedures specified in Annex E will result in
the loss of appraisal rights under the DGCL.
A holder of May common stock wishing to exercise appraisal
rights must not vote in favor of the approval and adoption of
the merger agreement and must deliver to May before the taking
of the vote on the merger agreement and the transactions
contemplated by the merger agreement, including the merger, at
the May annual meeting a written demand for appraisal of their
May common stock. This written demand for appraisal must be
separate from any proxy or vote abstaining from the vote on the
merger or against the merger. This demand must reasonably inform
May of the identity of the stockholder and of the
stockholders intent thereby to demand appraisal of their
shares. A holder of May common stock wishing to exercise
appraisal rights must be the record holder of these shares of
May common stock on the date the written demand for appraisal is
made and must continue to hold these shares of May common stock
through the effective date of the merger. Accordingly, a holder
of May common stock who is the record holder of May common stock
on the date the written demand for appraisal is made, but who
thereafter transfers these shares of May common stock prior to
consummation of the merger, will lose any right to appraisal in
respect of these shares of May common stock.
A proxy that is signed and does not contain voting instructions
will, unless revoked, be voted in favor of the approval and
adoption of the merger agreement and the transactions
contemplated by the merger agreement, including the merger, and
it will constitute a waiver of the stockholders right of
appraisal and will nullify any previously delivered written
demand for appraisal. Therefore, a stockholder who votes by
proxy and who wishes to exercise appraisal rights must vote
against the approval and adoption of the merger agreement and
the transactions contemplated by the merger agreement, including
the merger, or abstain from voting on the merger agreement.
Only a holder of record of May common stock on the record date
for the May annual meeting is entitled to assert appraisal
rights for the shares of May common stock registered in that
holders name. A demand for appraisal should be executed by
or on behalf of the holder of record, fully and correctly, as
the holders name appears on the holders stock
certificates, should specify the holders mailing address
and the number of shares registered in the holders name,
and must state that the person intends to demand appraisal of
the holders shares pursuant to the merger agreement. If
the shares of May common stock are held of record in a fiduciary
89
capacity, such as by a trustee, guardian or custodian, execution
of the demand should be made in that capacity, and if the May
common stock is held of record by more than one holder as in a
joint tenancy or tenancy in common, the demand should be
executed by or on behalf of all joint holders. An authorized
agent, including an agent for one or more joint holders, may
execute a demand for appraisal on behalf of a holder of record.
The agent, however, must identify the record holder or holders
and expressly disclose the fact that, in executing the demand,
the agent is acting as agent for the holder or holders. A record
holder such as a broker who holds May common stock as nominee
for several beneficial owners may exercise appraisal rights with
respect to the shares of May common stock held for one or more
beneficial owners while not exercising appraisal rights with
respect to the May common stock held for other beneficial
owners. In this case, the written demand should set forth the
number of shares of May common stock as to which appraisal is
sought. When no number of shares of May common stock is
expressly mentioned, the demand will be presumed to cover all
May common stock in brokerage accounts or other nominee forms
held by such record holder, and those who hold shares in
brokerage accounts or other nominee forms and who wish to
exercise appraisal rights under Section 262 of the DGCL are
urged to consult with their brokers to determine the appropriate
procedures for the making of a demand for appraisal by such a
nominee.
All written demands for appraisal should be sent or delivered
to The May Department Stores Company, 611 Olive Street,
St. Louis, Missouri 63101, Attention: Corporate
Secretary.
Within ten days after the effective date of the merger, Milan
Acquisition LLC, or its successor in interest, which we refer to
generally as the surviving company, will notify each former May
stockholder who has properly asserted appraisal rights under
Section 262 of the DGCL and has not voted in favor of
adopting the merger agreement and the transactions contemplated
by the merger agreement, including the merger, of the date the
merger became effective.
Within 120 days after the effective date of the merger, but
not thereafter, the surviving company or any former May
stockholder who has complied with the statutory requirements
summarized above may file a petition in the Delaware Court of
Chancery demanding a determination of the fair value of the
shares of May common stock that are entitled to appraisal
rights. None of Federated, the surviving company or May is under
any obligation to and none of them has any present intention to
file a petition with respect to the appraisal of the fair value
of the shares of May common stock. Accordingly, it is the
obligation of May stockholders wishing to assert appraisal
rights to take all necessary action to perfect and maintain
their appraisal rights within the time prescribed in
Section 262 of the DGCL.
Within 120 days after the effective date of the merger, any
former May stockholder who has complied with the requirements
for exercise of appraisal rights will be entitled, upon written
request, to receive from the surviving company a statement
setting forth the aggregate number of shares of May common stock
not voted in favor of adopting the merger agreement and the
transactions contemplated by the merger agreement, including the
merger, and with respect to which demands for appraisal have
been timely received and the aggregate number of former holders
of these shares of May common stock. These statements must be
mailed within ten days after a written request therefore has
been received by the surviving company or within 10 days
after expiration of the period for delivery of demands for
appraisal under Section 262 of the DGCL, whichever is later.
If a petition for an appraisal is filed timely with the Delaware
Court of Chancery by a former May stockholder and a copy thereof
is served upon the surviving company, the surviving company will
then be obligated within 20 days of service to file with
the Delaware Register in Chancery a duly certified list
containing the names and addresses of all former May
stockholders who have demanded appraisal of their shares of May
common stock and with whom agreements as to value have not been
reached. After notice to such former May stockholders as
required by the Delaware Court of Chancery, the Delaware Court
of Chancery may conduct a hearing on such petition to determine
those former May stockholders who have complied with
Section 262 of the DGCL and who have become entitled to
appraisal rights thereunder. The Delaware Court of Chancery may
require the former May stockholders who demanded appraisal of
their shares of May common stock to submit their stock
certificates to the Register in Chancery for notation
90
thereon of the pendency of the appraisal proceeding. If any
former stockholder fails to comply with such direction, the
Delaware Court of Chancery may dismiss the proceedings as to
that former stockholder.
After determining which, if any, former May stockholders are
entitled to appraisal, the Delaware Court of Chancery will
appraise their shares of May common stock, determining their
fair value, exclusive of any element of value
arising from the accomplishment or expectation of the merger,
together with a fair rate of interest, if any, to be paid upon
the amount determined to be the fair value. May stockholders
considering seeking appraisal should be aware that the fair
value of their shares of May common stock as determined under
Section 262 of the DGCL could be more than, the same as or
less than the value of the consideration they would receive
pursuant to the merger agreement if they did not seek appraisal
of their shares of May common stock and that investment banking
opinions as to fairness from a financial point of view are not
necessarily opinions as to fair value under Section 262 of
the DGCL. The Delaware Supreme Court has stated that, among
other factors, proof of value by any techniques or methods
which are generally considered acceptable in the financial
community and otherwise admissible in court should be
considered in the appraisal proceedings.
In addition, Delaware courts have decided that a
stockholders statutory appraisal remedy may or may not be
a dissenters exclusive remedy, depending on the factual
circumstances.
The costs of the appraisal action may be determined by the
Delaware Court of Chancery and levied upon the parties as the
Delaware Court of Chancery deems equitable. Upon application of
a former May stockholder, the Delaware Court of Chancery may
also order that all or a portion of the expenses incurred by any
former May stockholder in connection with an appraisal
proceeding, including, without limitation, reasonable
attorneys fees and the fees and expenses of experts used
in the appraisal proceeding, be charged pro rata against the
value of all of the shares of May common stock entitled to
appraisal.
Any holder of May common stock who has duly demanded an
appraisal in compliance with Section 262 of the DGCL will
not, after the consummation of the merger, be entitled to vote
the shares of May common stock subject to this demand for any
purpose or be entitled to the payment of dividends or other
distributions on those shares of May common stock (except
dividends or other distributions payable to holders of record of
May common stock as of a record date prior to the effective date
of the merger).
If any stockholder who properly demands appraisal of their May
common stock under Section 262 of the DGCL fails to
perfect, or effectively withdraws or loses, their right to
appraisal, as provided in Section 262 of the DGCL, that
stockholders shares of May common stock will be converted
into the right to receive the consideration payable with respect
to those shares of May common stock in accordance with the
merger agreement (without interest). A May stockholder will fail
to perfect, or effectively lose or withdraw, their right to
appraisal if, among other things, no petition for appraisal is
filed within 120 days after the effective date of the
merger, or if the stockholder delivers to May or the surviving
company, as the case may be, a written withdrawal of their
demand for appraisal. Any attempt to withdraw an appraisal
demand in this matter more than 60 days after the effective
date of the merger will require the written approval of the
surviving company and, once a petition for appraisal is filed,
the appraisal proceeding may not be dismissed as to any holder
absent court approval.
Failure to follow the steps required by Section 262 of the
DGCL for perfecting appraisal rights may result in the loss of
these rights, in which event a May stockholder will be entitled
to receive the consideration payable with respect to their
shares of May common stock in accordance with the merger
agreement (without interest).
Consequently, any stockholder willing to exercise appraisal
rights is urged to consult with legal counsel prior to
attempting to exercise such rights.
Delisting and Deregistration of May Common Stock
If the merger is completed, May common stock will be delisted
from the New York Stock Exchange and will be deregistered under
the Exchange Act, and May will no longer file periodic reports
with the SEC. The stockholders of May will become stockholders
of Federated and their rights as stockholders will be governed
91
by applicable Delaware law and by Federateds certificate
of incorporation and by-laws. See Comparison of Rights of
Stockholders beginning on page 177.
Federal Securities Laws Consequences; Resale Restrictions
All shares of Federated common stock that will be distributed to
May stockholders in the merger will be freely transferable,
except for restrictions applicable to affiliates of
May and except that resale restrictions may be imposed by
securities laws in non-U.S. jurisdictions insofar as
subsequent trades are made within these jurisdictions. Persons
who are deemed to be affiliates of May may resell shares of
Federated common stock received by them only in transactions
permitted by the resale provisions of Rule 145 or as
otherwise permitted under the Securities Act of 1933. Persons
who may be deemed to be affiliates of May generally include
executive officers, directors and holders of more than 10% of
the outstanding shares of May. The merger agreement requires May
to use its reasonable best efforts to cause each of its
directors and executive officers who May believes may be deemed
to be affiliates of May to execute a written agreement to the
effect that those persons will not sell, assign or transfer any
of the shares of Federated common stock issued to them in the
merger unless that sale, assignment or transfer has been
registered under the Securities Act of 1933, is in conformity
with Rule 145 or is otherwise exempt from the registration
requirements under the Securities Act of 1933.
This joint proxy statement/ prospectus does not cover any
resales of the shares of Federated common stock to be received
by May stockholders in the merger, and no person is authorized
to make any use of this joint proxy statement/ prospectus in
connection with any resale.
Certain Events
On March 1, 2005, Edward Decristofaro, an alleged May
stockholder, filed a purported class action lawsuit on behalf of
all May stockholders in the Circuit Court of St. Louis,
Missouri against May and all of the members of the board of
directors of May. The complaint generally alleges that the
directors of May breached their fiduciary duties of loyalty, due
care, good faith and candor to May stockholders in connection
with the proposed merger. The plaintiff requests
rescissory damages as well as the following relief:
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an order declaring that the action is properly maintainable as a
class action; |
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an order declaring that the merger agreement was entered into in
breach of the fiduciary duties of the defendants; |
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an order enjoining the defendants from consummating the merger
as planned; |
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an order directing that the defendants exercise their fiduciary
duties to obtain a transaction which is in the best interests of
May stockholders; |
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an order rescinding the merger to the extent already implemented; |
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an award of costs and disbursements, including reasonable
attorneys and experts fees; and |
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such other and further equitable relief as the court may deem
just and proper. |
On April 1, 2005, the defendants removed the lawsuit to the
United States District Court for the Eastern District of
Missouri and filed a motion to dismiss the lawsuit pursuant to
the Securities Litigation Uniform Standards Act of 1998. On
April 22, 2005, the plaintiff filed a motion to remand the
lawsuit to the Circuit Court of St. Louis, Missouri and
opposition to the defendants motion to dismiss. May
believes the lawsuit is without merit and intends to contest it
vigorously.
MATERIAL UNITED STATES FEDERAL INCOME TAX CONSEQUENCES
The following is a summary of the material United States federal
income tax consequences of the merger to U.S. holders of
Federated or May common stock who hold their stock as a capital
asset. The summary is based on the Internal Revenue Code of
1986, as amended, referred to as the Code, Treasury regulations
issued
92
under the Code, and administrative rulings and court decisions
in effect as of the date of this joint proxy statement/
prospectus, all of which are subject to change at any time,
possibly with retroactive effect.
For purposes of this discussion, the term
U.S. holder means:
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a citizen or resident of the United States; |
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a corporation created or organized under the laws of the United
States or any of its political subdivisions; |
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a trust that (i) is subject to the supervision of a court
within the United States and the control of one or more United
States persons or (ii) has a valid election in effect under
applicable United States Treasury regulations to be treated as a
United States person; or |
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an estate that is subject to United States federal income tax on
its income regardless of its source. |
If a partnership holds Federated or May common stock, the tax
treatment of a partner will depend on the status of the partners
and the activities of the partnership. If a U.S. holder is
a partner in a partnership holding Federated or May common
stock, the U.S. holder should consult its tax advisors.
This summary is not a complete description of all the tax
consequences of the merger and, in particular, may not address
United States federal income tax considerations applicable to
holders of Federated or May common stock who are subject to
special treatment under United States federal income tax law
(including, for example, non-United States persons, financial
institutions, dealers in securities, insurance companies or
tax-exempt entities, holders who acquired Federated common stock
or May common stock pursuant to the exercise of an employee
stock option or right or otherwise as compensation, and holders
who hold Federated common stock or May common stock as part of a
hedge, straddle or conversion transaction). This summary does
not address the tax consequences of any transaction other than
the merger. This summary does not address the tax consequences
to any person who actually or constructively owns 5% or more of
Federated or May common stock. Also, this summary does not
address United States federal income tax considerations
applicable to holders of options or warrants to purchase
Federated or May common stock, or holders of debt instruments
convertible into Federated or May common stock. In addition, no
information is provided with respect to the tax consequences of
the merger under applicable state, local or non-United States
laws.
The obligations of Federated and May to consummate the merger as
currently anticipated are conditioned on the receipt of opinions
of their respective tax counsel, Jones Day (as to Federated) and
Skadden, Arps, Slate, Meagher & Flom LLP (as to May),
dated the effective date of the merger, each referred to as a
Tax Opinion, to the effect that the merger will be treated as a
reorganization within the meaning of Section 368(a) of the
Code and that May and Federated will each be a party to the
reorganization within the meaning of Section 368(b) of the
Code. Each of the Tax Opinions will be subject to customary
qualifications and assumptions, including the assumption that
the merger will be completed according to the terms of the
merger agreement. In rendering the Tax Opinions, each counsel
may rely upon representations and covenants, including those
contained in certificates of officers of Federated and May.
Although the merger agreement allows each of Federated and May
to waive this condition to closing, neither Federated nor May
currently anticipates doing so. However, in the event that
Federateds stock price declines to the point where counsel
are unable to render one or both Tax Opinions, the structure of
the merger may change and holders of May common stock may
recognize taxable gain on the exchange of their shares, as more
fully explained below under Federal income tax
consequences to May stockholders if the transaction is
restructured because tax deferred exchange treatment cannot be
obtained.
Neither the Tax Opinions nor the discussion that follows is
binding on the Internal Revenue Service, referred to as the IRS,
or the courts. In addition, the parties do not intend to request
a ruling from the IRS with respect to the merger. Accordingly,
there can be no assurance that the IRS will not challenge the
conclusion expressed in the Tax Opinions or the discussion
below, or that a court will not sustain such a challenge.
93
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Federal income tax consequences to Federated stockholders
who do not hold any May common stock |
Because holders of Federated common stock will retain their
common stock in the merger, holders of Federated common stock
will not recognize gain or loss upon the merger.
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Federal income tax consequences to May stockholders if the
merger is consummated as currently anticipated |
The following discussion assumes that the exchange of May common
stock for Federated common stock pursuant to the merger will
constitute a reorganization within the meaning of
Section 368(a) of the Code.
A holder of May common stock who receives cash and Federated
common stock in the merger will recognize gain equal to the
lesser of (i) the excess of the sum of the fair market
value of the Federated common stock received by the holder in
exchange for May common stock and the amount of cash received by
the holder (excluding any cash received in lieu of fractional
shares) in exchange for May common stock over the holders
tax basis in the May common stock and (ii) the amount of
cash received by the holder in exchange for May common stock
(excluding any cash received in lieu of fractional shares). No
loss will be recognized by holders of May common stock in the
merger, except, possibly, in connection with the receipt of cash
in lieu of fractional shares, as discussed below. The gain
recognized will be capital gain unless the receipt of cash by
the holder of May common stock has the effect of a distribution
of a dividend, in which case the gain will be treated as
ordinary dividend income to the extent of the holders
ratable share of accumulated earnings and profits as calculated
for United States federal income tax purposes. In determining
whether a holders receipt of cash has the effect of a
distribution of a dividend, the holder will be treated as if it
first exchanged all of its Federated common stock for May common
stock and then Federated immediately redeemed a portion of the
May common stock for the cash that the holder actually received
pursuant to the merger agreement. The IRS has indicated in
rulings that any reduction in the interest of a minority
stockholder that owns a small number of shares in a publicly and
widely held corporation and that exercises no control over
corporate affairs would result in capital gain as opposed to
dividend treatment. In determining the interest of a stockholder
in a corporation, the constructive ownership rules that apply
for United States federal income tax purposes must be taken into
account. This same analysis could apply to cash received by a
holder of May common stock in lieu of fractional shares. Any
gain recognized by a holder of May common stock will be
long-term capital gain if the holders holding period of
the May common stock is more than one year. Capital gains of
individuals derived in respect of capital assets held for more
than one year are eligible for reduced rates of taxation. The
aggregate tax basis of the Federated common stock received
(including fractional shares deemed received and redeemed as
described below) will be equal to the aggregate tax basis of the
May common stock surrendered, reduced by the amount of cash the
holder of May common stock receives (excluding any cash received
in lieu of fractional shares), and increased by the amount of
gain that the holder of May common stock recognizes, but
excluding any gain or loss from the deemed receipt and
redemption of fractional shares described below. The holding
period of Federated common stock received by a holder of May
common stock in the merger will include the holding period of
the holders May common stock.
Cash received by a holder of May common stock in lieu of
fractional shares will be treated as if the holder received the
fractional shares in the merger and then received the cash in a
redemption of the fractional shares. The holder should recognize
capital gain or loss equal to the difference between the amount
of the cash received in lieu of fractional shares and the
portion of the holders tax basis allocable to the
fractional shares. Under the circumstances described in the
preceding paragraph, the receipt of cash in lieu of fractional
shares could also have the effect of a distribution of a
dividend.
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Federal income tax consequences to May stockholders if the
transaction is restructured because tax deferred exchange
treatment cannot be obtained |
If Federateds stock price declines to the point where one
or both Tax Opinions cannot be issued and if Federated, in these
circumstances, does not opt to increase the amount of Federated
common stock provided to holders of May common stock in the
merger, May may elect to increase the cash consideration
received in the merger for each share of May common stock to
$18.75. If this restructuring occurs, a holder of May
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common stock who receives cash and Federated common stock in the
merger will recognize gain or loss equal to the difference, if
any, between (i) the sum of the fair market value of the
Federated common stock and the amount of cash received and
(ii) the holders tax basis in the May common stock.
Gain or loss will be determined separately for each block of
shares (i.e., shares acquired at the same cost in a single
transaction) of May common stock surrendered for the
consideration described above pursuant to the merger. Any gain
or loss recognized by a holder of May common stock will be
long-term capital gain or loss if the holders holding
period of the May common stock is more than one year. Capital
gains of individuals derived in respect of capital assets held
for more than one year are eligible for reduced rates of
taxation. There are limitations on the deductibility of capital
losses.
Backup withholding may apply with respect to the cash
consideration received by a holder of May common stock in the
merger unless the holder:
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is a corporation or comes within certain other exempt categories
and, when required, demonstrates this fact; or |
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provides a correct taxpayer identification number, certifies as
to no loss of exemption from backup withholding and that such
holder is a U.S. person (including a U.S. resident
alien) and otherwise complies with applicable requirements of
the backup withholding rules. |
A holder of May common stock who does not provide Federated (or
the exchange agent) with its correct taxpayer identification
number may be subject to penalties imposed by the IRS. Any
amounts withheld under the backup withholding rules may be
allowed as a refund or a credit against the holders
federal income tax liability, provided that the holder furnishes
certain required information to the IRS.
U.S. holders of May common stock receiving Federated common
stock in the merger will be required to attach to their federal
income tax returns for the taxable year in which the merger
occurs a complete statement, and maintain a permanent record, of
all the facts relating to the exchange of stock in connection
with the merger. The facts to be disclosed by a U.S. holder
include the holders basis in the May common stock
transferred to Federated and the number of shares of Federated
common stock received by the holder in the merger.
THE FOREGOING DISCUSSION OF UNITED STATES FEDERAL INCOME TAX
CONSEQUENCES IS NOT INTENDED TO CONSTITUTE A COMPLETE
DESCRIPTION OF ALL TAX CONSEQUENCES RELATING TO THE MERGER. TAX
MATTERS ARE VERY COMPLICATED, AND THE TAX CONSEQUENCES OF THE
MERGER TO YOU WILL DEPEND UPON THE FACTS OF YOUR PARTICULAR
SITUATION. BECAUSE INDIVIDUAL CIRCUMSTANCES MAY DIFFER, WE URGE
YOU TO CONSULT WITH YOUR TAX ADVISOR REGARDING THE APPLICABILITY
TO YOU OF THE RULES DISCUSSED ABOVE AND THE PARTICULAR TAX
EFFECTS TO YOU OF THE MERGER, INCLUDING THE APPLICATION OF
STATE, LOCAL AND FOREIGN TAX LAWS.
THE MERGER AGREEMENT
The following is a summary of certain material provisions of the
merger agreement, a copy of which is attached as Annex A to
this joint proxy statement/ prospectus and is incorporated into
this joint proxy statement/ prospectus by reference. We urge you
to read carefully this entire joint proxy statement/ prospectus,
including the annexes and the other documents to which we have
referred you. See Where You Can Find More
Information beginning on page 185.
The merger agreement has been included to provide you with
information regarding its terms, and we recommend that you read
it in its entirety.
95
The merger agreement included as an annex to this joint proxy
statement/ prospectus should be read in conjunction with the
disclosures in Federateds and Mays filings with the
SEC incorporated by reference into this joint proxy statement/
prospectus. See Where You Can Find More Information
beginning on page 185 for the filings with the SEC
incorporated by reference into this joint proxy statement/
prospectus. The terms of the merger agreement are intended to
govern the contractual rights and relationships, and to allocate
risks, between Federated and May with respect to the merger. The
representations and warranties made by Federated and May to one
another were negotiated between the parties for the principal
purpose of setting forth their respective rights and obligations
regarding closing the merger if events or circumstances change,
and we do understand that, while not expected, such changes
could nevertheless occur. Moreover, the representations and
warranties are themselves specifically qualified in a number of
important respects and we urge you to consider those
qualifications as you read the representations and warranties in
the merger agreement.
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First, all of the representations and warranties that deal
with the business and operations of Federated and May are
qualified to the extent that any inaccuracy would not reasonably
be expected to have or result in, individually or in the
aggregate, a material adverse effect on the party making the
representation and warranty. |
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Second, none of the representations or warranties will
survive the closing of the merger and they will therefore have
no legal effect among the parties to the merger agreement after
the closing, nor will the parties be able to assert the
inaccuracy of the representations and warranties as a basis for
refusing to close unless all such inaccuracies as a whole would
reasonably be expected to have or result in, individually or in
the aggregate, a material adverse effect on the party that made
the representations and warranties. Otherwise, for purposes of
the merger agreement, the representations and warranties will be
deemed to have been sufficiently accurate to require a
closing. |
Federated and May have provided additional disclosure in
their public reports and other filings with the SEC to the
extent that they are aware of the existence of any material
facts that are required to be disclosed under the federal
securities laws and that might otherwise contradict the
representations and warranties contained in the merger agreement
and will update such disclosure as required by the federal
securities laws.
The Merger; Closing
Upon the terms and subject to the conditions of the merger
agreement, and in accordance with Delaware law, at the effective
time of the merger, May will merge with and into Merger Sub, a
wholly owned subsidiary of Federated. The separate corporate
existence of May will cease.
The closing of the merger will occur no later than the second
business day following the date on which all of the conditions
to the merger, other than conditions that, by their terms,
cannot be satisfied until the closing date (but subject to
satisfaction of such conditions) have been satisfied or waived,
unless the parties agree on another time. Federated and May
expect to complete the merger in the third quarter of 2005.
However, we cannot assure you that such timing will occur or
that the merger will be completed as expected.
As soon as practicable on or after the closing date of the
merger, Federated and May will file a certificate of merger with
the Secretary of State of the State of Delaware. The effective
time of the merger will be the time Federated and May file the
certificate of merger or at a later time Federated and May may
agree and specify in the certificate of merger.
Directors and Officers
The directors of Merger Sub immediately prior to the effective
time of the merger will be the directors of the surviving
company, until the earlier of their death, resignation or
removal or until their respective successors are duly elected
and qualified, as the case may be. The officers of May
immediately prior to the
96
effective time of the merger will be the officers of the
surviving company, until the earlier of their death, resignation
or removal or until their respective successors are duly elected
and qualified, as the case may be.
Federated will select two individuals who are directors of May
as of the date of the merger agreement and who are recommended
by the NCG Committee of Federateds board of directors and,
if such individuals are willing to serve, Federated will use its
reasonable best efforts to appoint these individuals, as of the
effective time of the merger, to Federateds board of
directors.
Merger Consideration
Upon the effectiveness of the merger, each share of May common
stock (other than shares held by any dissenting May stockholder
that has properly exercised appraisal rights in accordance with
Delaware law as described above) will be converted into the
right to receive from Federated the merger consideration,
consisting of the following:
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$17.75 in cash, without interest; and |
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0.3115 fully paid, nonassessable shares of Federated common
stock. |
The total value of the merger consideration that a May
stockholder receives in the merger may vary. The value of the
cash portion of the merger consideration is fixed at $17.75 for
each share of May common stock. The value of the stock portion
of the merger consideration is not fixed and will depend upon
the value of 0.3115 shares of Federated common stock. This
value may be ascertained by multiplying the trading price of
Federated common stock by 0.3115.
As illustrated in the table below, the value of
0.3115 shares of Federated common stock may be less than or
greater than $17.75, which was the value of the stock portion of
the merger consideration as of the announcement of the
transaction, based on the 10-day trading average of Federated
common stock as of February 25, 2005. In particular, if the
closing price of Federated common stock upon completion of the
merger is greater than $56.98, then the value of
0.3115 shares of Federated common stock would be greater
than $17.75. If the closing price of Federated common stock upon
completion of the merger is less than $56.98, then the value of
0.3115 shares of Federated common stock would be less than
$17.75.
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Corresponding Value | |
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Hypothetical Trading | |
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of 0.3115 Shares of | |
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Corresponding | |
Price of Federateds | |
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Federateds Common | |
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Value of Merger | |
Common Stock | |
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Stock | |
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Cash Consideration | |
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Consideration | |
$ |
70.98 |
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$ |
22.11 |
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$ |
17.75 |
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$ |
39.86 |
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$ |
69.98 |
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$ |
21.80 |
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$ |
17.75 |
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$ |
39.55 |
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$ |
68.98 |
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$ |
21.49 |
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$ |
17.75 |
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$ |
39.24 |
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$ |
67.98 |
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$ |
21.18 |
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$ |
17.75 |
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$ |
38.93 |
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$ |
66.98 |
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$ |
20.86 |
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$ |
17.75 |
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$ |
38.61 |
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$ |
65.98 |
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$ |
20.55 |
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$ |
17.75 |
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$ |
38.30 |
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$ |
64.98 |
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$ |
20.24 |
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$ |
17.75 |
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$ |
37.99 |
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$ |
63.98 |
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$ |
19.93 |
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$ |
17.75 |
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$ |
37.68 |
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$ |
62.98 |
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$ |
19.62 |
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$ |
17.75 |
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$ |
37.37 |
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$ |
61.98 |
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$ |
19.31 |
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$ |
17.75 |
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$ |
37.06 |
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$ |
60.98 |
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$ |
19.00 |
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$ |
17.75 |
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$ |
36.75 |
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$ |
59.98 |
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$ |
18.68 |
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$ |
17.75 |
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$ |
36.43 |
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$ |
58.98 |
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$ |
18.37 |
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$ |
17.75 |
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$ |
36.12 |
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$ |
57.98 |
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$ |
18.06 |
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$ |
17.75 |
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$ |
35.81 |
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Corresponding Value | |
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Hypothetical Trading | |
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of 0.3115 Shares of | |
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Corresponding | |
Price of Federateds | |
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Federateds Common | |
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Value of Merger | |
Common Stock | |
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Stock | |
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Cash Consideration | |
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Consideration | |
$ |
56.98 |
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$ |
17.75 |
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$ |
17.75 |
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$ |
35.50 |
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$ |
55.98 |
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$ |
17.44 |
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$ |
17.75 |
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$ |
35.19 |
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$ |
54.98 |
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$ |
17.13 |
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$ |
17.75 |
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$ |
34.88 |
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$ |
53.98 |
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$ |
16.81 |
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$ |
17.75 |
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$ |
34.56 |
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$ |
52.98 |
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$ |
16.50 |
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$ |
17.75 |
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$ |
34.25 |
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$ |
51.98 |
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$ |
16.19 |
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$ |
17.75 |
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$ |
33.94 |
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$ |
50.98 |
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$ |
15.88 |
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$ |
17.75 |
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$ |
33.63 |
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$ |
49.98 |
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$ |
15.57 |
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$ |
17.75 |
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$ |
33.32 |
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$ |
48.98 |
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$ |
15.26 |
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$ |
17.75 |
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$ |
33.01 |
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$ |
47.98 |
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$ |
14.95 |
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$ |
17.75 |
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$ |
32.70 |
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$ |
46.98 |
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$ |
14.63 |
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$ |
17.75 |
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$ |
32.38 |
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$ |
45.98 |
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$ |
14.32 |
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$ |
17.75 |
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$ |
32.07 |
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$ |
44.98 |
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$ |
14.01 |
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$ |
17.75 |
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$ |
31.76 |
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$ |
43.98 |
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$ |
13.70 |
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$ |
17.75 |
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$ |
31.45 |
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$ |
42.98 |
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$ |
13.39 |
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$ |
17.75 |
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$ |
31.14 |
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If the total value of the Federated common stock to be received
in the merger falls below 40% of the total consideration paid on
the closing date, the merger consideration may be taxable for
federal income tax purposes. In that event, Federated may elect
to pay more in Federated common stock to maintain the nontaxable
status or, if Federated does not so elect, May may elect to
increase the cash consideration received in the merger for each
share of May common stock to $18.75. Under the merger agreement,
there are no other circumstances in which the exchange ratio or
the cash consideration increases. Federated and May will issue a
joint press release if either the exchange ratio or the cash
consideration increases.
The exchange ratio in the merger and the cash consideration will
be proportionately and appropriately adjusted to reflect the
effect of any reclassification, recapitalization, split-up,
stock split, subdivision, combination or exchange of shares or
readjustment, or stock dividend, or other like change with
respect to Federated common stock or May common stock having a
record date on or after the date of the merger agreement and
prior to completion of the merger.
Upon completion of the merger, each share of May common stock
held by Federated, May or any direct or indirect majority owned
subsidiary of Federated or May immediately prior to the merger
will be automatically cancelled and extinguished, and none of
Federated, May or any of their respective direct or indirect
majority owned subsidiaries will receive any consideration in
exchange for those shares.
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Treatment of ESOP Preference Shares |
Each issued and outstanding May ESOP preference share will be
converted into the right to receive the merger consideration on
an as converted basis in the same manner as the shares of May
common stock, as described above.
No fractional Federated common shares will be issued in the
merger. Instead, holders who would otherwise be entitled to
receive a fractional share of Federated common stock will
receive an amount in cash (without interest) determined by
multiplying the fractional share interest by the average closing
price for a
98
share of Federated common stock as reported on the NYSE
Composite Transactions Reports for the ten trading days prior
to, but not including, the closing date of the merger.
Shares of May common stock held by any May stockholder that
properly demands payment for its shares in compliance with the
appraisal rights under Section 262 of the DGCL will not be
converted into the right to receive the merger consideration.
May stockholders properly exercising appraisal rights will be
entitled to payment as further described above under The
Merger Appraisal Rights of May Stockholders
beginning on page 88. However, if any May stockholder
withdraws his or her demand for appraisal (in accordance with
Section 262 of the DGCL) or becomes ineligible for
appraisal, then that May stockholder will not be paid in
accordance with Section 262 of the DGCL and the shares of
May common stock held by that May stockholder will be converted
as of the effective time of the merger into and represent the
right to receive the merger consideration, without interest.
Exchange Procedures
Not later than 15 business days prior to the effective time of
the merger, Federated will enter into an agreement with an
exchange agent for the merger to handle the exchange of shares
of May common stock for the merger consideration, including the
payment of cash for fractional shares. As of the effective time
of the merger, Federated will deposit with the exchange agent,
for the benefit of the holders of May common stock, cash and
certificates representing Federated common shares issuable in
the merger in exchange for outstanding shares of May common
stock and ESOP preference shares, including any cash to be paid
in lieu of fractional shares or in respect of any dividends or
distributions on shares of Federated common stock with a record
date after the effective time of the merger or in respect of
dividends or distributions on shares of May common stock with a
record date prior to the effective time of the merger which
remain unpaid at the effective time of the merger.
At the effective time of the merger, each certificate
representing shares of May common stock that has not been
surrendered will represent only the right to receive upon
surrender of that certificate the merger consideration,
dividends and other distributions on shares of Federated common
stock with a record date after the effective time of the merger,
dividends and other distributions on shares of May common stock
with a record date prior to the effective time of the merger
that remain unpaid as of the effective time of the merger and
cash, without interest, in lieu of fractional shares. Following
the effective time of the merger, no further registrations of
transfers on the stock transfer books of the surviving company
of the shares of May common stock will be made. If, after the
effective time of the merger, May stock certificates are
presented to Federated, the surviving company or the exchange
agent for any reason, they will be cancelled and exchanged as
described above.
Exchange of Shares
As soon as reasonably practicable after the effective time of
the merger, the exchange agent will mail to each holder of
record of a May stock certificate whose shares of May common
stock were converted into the right to receive the merger
consideration, a letter of transmittal and instructions
explaining how to surrender May stock certificates in exchange
for the merger consideration.
After the effective time of the merger, upon surrender of a May
stock certificate to the exchange agent, together with a letter
of transmittal, duly executed, and other documents as may
reasonably be required by the exchange agent, the holder of the
May stock certificate will be entitled to receive the merger
consideration, dividends and other distributions on shares of
Federated common stock with a record date after the effective
time of the merger, dividends and other distributions on shares
of May common stock with a record date prior to the effective
time of the merger that remain unpaid as of the effective time
of the merger and cash, without interest, in lieu of fractional
shares, and the May stock certificates surrendered will be
cancelled.
99
Transfers of Ownership and Lost Stock Certificates
A May stockholder desiring to receive payment upon the surrender
of stock certificates registered in the name of another person
will receive payment if the stock certificates have been
properly endorsed or are otherwise in proper form for transfer
and the stockholder:
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pays any transfer or other taxes required because the payment is
made to a person other than the registered holder of the May
stock certificate; or |
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establishes to the satisfaction of the exchange agent that any
transfer or other taxes described above have been paid or are
not applicable. |
If any stock certificate has been lost, stolen or destroyed,
upon the making of an affidavit of that fact by the person
claiming the stock certificate to be lost, stolen or destroyed
and, if required by Federated or the surviving company, as the
case may be, the posting by such person of a bond in a
reasonable amount as Federated or the surviving company, as the
case may be, may direct as indemnity against any claim that may
be made against it with respect to the stock certificate, the
exchange agent will issue, in exchange for such lost, stolen or
destroyed stock certificate, the merger consideration, dividends
and other distributions on shares of Federated common stock with
a record date after the effective time of the merger, dividends
and other distributions on shares of May common stock with a
record date prior to the effective time of the merger that
remain unpaid as of the effective time of the merger and cash,
without interest, in lieu of fractional shares.
May stock certificates should not be returned with the
enclosed proxy card(s). May stock certificates should be
returned with a validly executed transmittal letter and
accompanying instructions that will be provided to May
stockholders following the effective time of the merger.
Termination of Exchange Fund
Six months after the effective time of the merger, Federated may
require the exchange agent to deliver to Federated all cash and
shares of Federated common stock remaining in the exchange fund.
Thereafter, May stockholders must look only to Federated for
payment of the merger consideration on their shares of May
common stock.
No Liability
None of Federated, the surviving company or the exchange agent
will be liable to any person in respect of any shares of
Federated common stock, any dividends or distributions on
Federated common stock with a record date after the effective
time of the merger, dividends and other distributions on May
common stock with a record date prior to the effective time of
the merger that remain unpaid as of the effective time of the
merger or cash, without interest, in lieu of fractional shares
of Federated common stock or any cash from the exchange fund, in
each case, delivered to a public official pursuant to any
applicable abandoned property, escheat or similar law.
Representations and Warranties
The merger agreement contains representations and warranties
made by each party to the other. These representations and
warranties are qualified in their entirety by all information
each of us has filed with the SEC prior to the date of the
merger agreement (which filings are available without charge at
the SECs website, www.sec.gov) as well as by a disclosure
letter each of us delivered to the other immediately prior to
signing the merger agreement. These representations and
warranties relate to, among other things:
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due organization, good standing and the requisite corporate
power and authority to carry on their respective businesses; |
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ownership of subsidiaries; |
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capital structure and equity securities; |
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corporate power and authority to enter into the merger agreement
and due execution, delivery and enforceability of the merger
agreement; |
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board of directors approval; |
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absence of conflicts with charter documents, breaches of
contracts and agreements, liens upon assets and violations of
applicable law resulting from the execution and delivery of the
merger agreement and consummation of the transactions
contemplated by the merger agreement; |
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absence of required governmental or other third party consents
in connection with execution and delivery of the merger
agreement and consummation of the transactions contemplated by
the merger agreement other than governmental filings specified
in the merger agreement, such as filing premerger notification
under the HSR Act; |
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timely filing of required documents with the SEC, material
compliance with the requirements of the Securities Act and the
Exchange Act and the absence of untrue statements of material
facts or omissions of material facts in those documents; |
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material compliance of financial statements as to form with
applicable accounting requirements and SEC rules and regulations
and preparation in accordance with U.S. generally accepted
accounting principles; |
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absence of misleading information contained or incorporated into
this joint proxy statement/ prospectus or the registration
statement of which this joint proxy statement/ prospectus forms
a part; |
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absence of specified changes or events and that the conduct of
its business has been in the ordinary course since
January 31, 2004; |
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compliance with applicable laws and holding of all necessary
permits; |
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employee benefits matters and ERISA compliance; |
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tax matters; |
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environmental matters and compliance with environmental laws; |
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the stockholder votes required to approve and adopt the merger
agreement and authorize the issuance of Federated common stock; |
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receipt of a fairness opinion from each companys financial
advisors; and |
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brokers or finders fees. |
Federated and Merger Sub made additional representations and
warranties to May in the merger agreement, including the
availability of funds sufficient to pay the cash portion of the
merger consideration and all other cash amounts to be paid
pursuant to the merger agreement and that Merger Sub is a duly
incorporated, wholly owned subsidiary of Federated, formed
solely to enter into the merger agreement and engaging in the
transactions contemplated by the merger agreement.
May also made additional representations and warranties to
Federated, including the non-applicability of anti-takeover laws
to the merger and that it had taken all action necessary on the
part of May to render Mays rights agreement inapplicable
to the merger.
The representations and warranties contained in the merger
agreement will not survive the consummation of the merger, but
they form the basis of specified conditions to the parties
obligations to complete the merger.
101
Covenants and Agreements
May has agreed that prior to the effective time of the merger it
and its subsidiaries will carry on their businesses in the
ordinary course. With specified exceptions, May has agreed,
among other things, not to:
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declare, set aside or pay any dividends on, or make any other
distributions in respect of, any of its capital stock, except,
among other things, for quarterly cash dividends not in excess
of $0.245 per share, and any dividends required under the
terms of the ESOP preference shares; |
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split, combine or reclassify any of its capital stock; |
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except as required in connection with the ESOP preference shares
or Mays stock plans, purchase, redeem or otherwise acquire
any shares of its or its subsidiaries capital stock or any
other securities of May or any of its subsidiaries or any
rights, warrants or options to acquire any of those shares or
other securities; |
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issue or authorize the issuance of, deliver or sell any shares
of its capital stock, any other voting securities or any
securities convertible into, or any rights, warrants or options
to acquire, any such shares, voting securities or convertible
securities, other than in connection with Mays stock plans
or the ESOP preference shares; |
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amend its certificate of incorporation or by-laws, other than
amendments or changes to any such documents of Mays
subsidiaries in the ordinary course of business; |
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sell, lease, license, mortgage or otherwise encumber or subject
to any lien or otherwise dispose of any of its material
properties or assets, other than in the ordinary course of
business; |
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incur any material long or short-term indebtedness other than in
the ordinary course of business or under existing lines of
credit; |
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other than in the ordinary course of business, grant any
increase in the compensation or benefits payable or to become
payable by May or any of its subsidiaries to any current or
former director, officer, employee or consultant; |
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other than in the ordinary course of business, adopt, enter
into, amend or otherwise increase, reprice or accelerate the
payment or vesting of the amounts, benefits or rights payable or
accrued or to become payable or accrued under any of Mays
or its subsidiaries employee benefit plans; |
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other than in the ordinary course of business, enter into or
amend any employment, bonus, severance, change-in-control,
retention agreement or any similar agreement or any collective
bargaining agreement, or grant any severance, bonus, termination
or retention pay to any officer, director, employee or
consultant; |
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other than in the ordinary course of business, pay or award any
pension, retirement, allowance or other non-equity incentive
awards, or other employee or director benefit not required by
any outstanding May employee benefit plans; |
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change the accounting principles used by it unless required by
applicable generally accepted accounting principles or by any
government entity; |
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acquire by merging or consolidating with, by purchasing any
substantial equity interest in or a substantial portion of the
assets of, or by any other manner, any significant business or
any corporation, partnership, association or other business
organization or division of that entity, or otherwise acquire
any assets that are material to May and its subsidiaries, taken
as a whole, other than; (i) the purchase of assets from
suppliers or vendors in the ordinary course of business,
(ii) items reflected in the capital plan of May previously
made available to Federated, or (iii) acquisitions of
businesses or assets involving consideration up to an aggregate
amount not to exceed $50 million; |
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except in the ordinary course of business, make or rescind any
material express or deemed election or settle or compromise any
material claim or action relating to taxes, or materially change
any of its methods of accounting or of reporting income or
deductions for tax purposes; |
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satisfy any material claims or liabilities, other than
satisfaction in the ordinary course of business or in accordance
with their terms; |
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make any loans, advances or capital contributions to, or
investments in, any other person in excess of $25 million
in the aggregate, except for (i) loans, advances, capital
contributions or investments between any wholly owned May
subsidiary and May or another wholly owned May subsidiary,
(ii) employee advances for expenses in the ordinary course
of business or (iii) ordinary course proprietary credit
card transactions; |
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other than in the ordinary course of business and other than
contracts that may be terminated within one year or amendments
renewing, on substantially similar terms, any contract existing
on the date of the merger agreement, terminate or adversely
modify or amend any contract having a duration of more than one
year and total payment obligations of May in excess of
$25 million; |
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other than in the ordinary course of business, waive, release,
relinquish or assign any right or claim of material value to May; |
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other than in the ordinary course of business, cancel or forgive
any material indebtedness owed to May or any of its
subsidiaries; or |
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authorize, or commit or agree to take, any of the foregoing
actions. |
Federated has agreed that, prior to the effective time of the
merger, it and its subsidiaries will carry on their businesses
in the ordinary course. Merger Sub has agreed that prior to the
effective time of the merger, it will not engage in any
activities of any nature except as contemplated in the merger
agreement. With specified exceptions, Federated has agreed,
among other things, not to:
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declare, set aside or pay any dividends on, or make any other
distributions in respect of, any of its capital stock, except,
among other things, for quarterly cash dividends of
$0.14 per share; |
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split, combine or reclassify any of its capital stock; |
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except pursuant to agreements entered into with respect to
Federated stock plans that are in effect as of the close of
business on the date of the merger agreement, purchase, redeem
or otherwise acquire any shares of capital stock of Federated or
any of its subsidiaries or any other securities of Federated or
any of its subsidiaries or any rights, warrants or options to
acquire any of those shares or other securities; |
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issue or authorize the issuance of, deliver, or sell any shares
of its capital stock, or any other securities in respect of, in
lieu of, or in substitution for, shares of its capital stock,
any other voting securities or any securities convertible into,
or any rights, warrants or options to acquire, any of such
shares, voting securities or convertible securities, other than
in connection with Federateds stock plans; |
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amend its certificate of incorporation or by-laws, other than
amendments or changes to any such documents of Federateds
subsidiaries in the ordinary course of business; |
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sell, lease, license, mortgage or otherwise encumber or subject
to any lien or otherwise dispose of any of its material
properties or assets other than in the ordinary course of
business; |
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change the accounting principles used by it unless required by
applicable generally accepted accounting principles or by any
government entity; |
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acquire by merging or consolidating with, by purchasing any
substantial equity interest in or a substantial portion of the
assets of, or by any other manner, any business or any
corporation, partnership, association or other business
organization or division of that entity, or otherwise acquire
assets that are material to Federated and its subsidiaries,
taken as a whole, other than; (i) the purchase of assets
from suppliers or vendors in the ordinary course of business,
(ii) items reflected in the capital |
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plan of Federated previously made available to May, or
(iii) acquisitions of businesses or assets involving
consideration up to an aggregate amount not to exceed
$50 million; |
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except in the ordinary course of business, make or rescind any
material express or deemed election or settle or compromise any
material claim or action relating to taxes, or materially change
any of its methods of accounting or of reporting income or
deductions for tax purposes; |
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satisfy any material claims or liabilities, other than in the
ordinary course of business or in accordance with their terms; |
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other than in the ordinary course of business and other than
contracts that may be terminated within one year or amendments
renewing, on substantially similar terms, any contract existing
on the date of the merger agreement, terminate or adversely
modify or amend any contract having a duration of more than one
year and total payment obligations of Federated in excess of
$25 million; |
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other than in the ordinary course of business, waive, release,
relinquish or assign any right or claim of material value to
Federated; |
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other than in the ordinary course of business, cancel or forgive
any material indebtedness owed to Federated or any of its
subsidiaries; or |
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authorize, or commit or agree to take, any of the foregoing
actions. |
May has agreed, and agreed to use its reasonable best efforts to
cause its officers, directors, employees, financial advisors,
attorneys, accountants and other advisors, investment bankers,
representatives and agents, to cease all then existing
activities with any parties with respect to or that could
reasonably be expected to lead to a company takeover
proposal. A company takeover proposal means any bona fide
written proposal or offer from any person relating to any:
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direct or indirect acquisition or purchase of a business that
constitutes 50% or more of the net revenues, net income or the
assets of May and its subsidiaries, taken as a whole; |
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direct or indirect acquisition or purchase of 50% or more of the
combined voting power of May; |
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any tender offer or exchange offer that if consummated would
result in any person beneficially owning 50% or more of the
combined voting power of May; or |
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any merger, consolidation, business combination,
recapitalization, liquidation, dissolution or similar
transaction involving May, other than the transactions
contemplated by the merger agreement. |
In addition, May has agreed that it will not, and will not
permit its officers, directors, employees, financial advisors,
attorneys, accountants and other advisors, investment bankers,
representatives and agents to, directly or indirectly:
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solicit, initiate or knowingly encourage the making of a company
takeover proposal; |
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enter into any agreement, arrangement or understanding with
respect to any company takeover proposal; or |
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other than informing persons of the existence of the
non-solicitation provision, participate in any discussions or
negotiations regarding, or furnish or disclose to any person
(other than to Federated) any non-public information with
respect to May in connection with any inquiries or the making of
any proposal that constitutes, or would reasonably be expected
to lead to, any company takeover proposal. |
Notwithstanding the foregoing, May may, at any time prior to
obtaining May stockholder approval at the May annual meeting, in
response to an unsolicited company takeover proposal that the
board of directors of May determines in good faith (after
consultation with its outside counsel and a financial advisor of
nationally recognized reputation) constitutes or would
reasonably be expected to lead to a superior
proposal (as
104
defined below), and which company takeover proposal was made
after the date of the merger agreement and did not otherwise
result from a breach of Mays non-solicitation obligations:
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furnish information with respect to May to the person making the
company takeover proposal (and its representatives) pursuant to
a customary confidentiality agreement not less restrictive of
the person than the existing confidentiality agreement between
May and Federated, provided that all the information is, in
substance, simultaneously provided to Federated; and |
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participate in discussions or negotiations with the person
making the company takeover proposal (and its representatives)
regarding the company takeover proposal. |
Superior proposal means a company takeover proposal
from any person to acquire, directly or indirectly, for
consideration consisting of cash and/or securities, all of the
combined voting power of May then outstanding or all or
substantially all of the assets of May that the board of
directors of May determines in its good faith judgment (after
consulting with a nationally recognized investment banking
firm), taking into account all legal, financial and regulatory
and other aspects of the proposal and the person making the
proposal (including any break-up fees, expense reimbursement
provisions and conditions to consummation):
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would be more favorable from a financial point of view to the
stockholders of May than the transactions contemplated by the
merger agreement (including any adjustment to the terms and
conditions proposed by Federated in response to such company
takeover proposal), and |
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for which financing, to the extent required, is then committed
or may reasonably be expected to be committed. |
Unless the board of directors of May determines in good faith,
after consulting with outside counsel, that taking such action
would result in a reasonable probability that the board of
directors of May would breach its fiduciary duties, May has
agreed to promptly (but in any event within one business day)
advise Federated of the receipt, directly or indirectly, of any
inquiries, requests, discussions, negotiations or proposals
relating to a company takeover proposal, or any request for
nonpublic information relating to May by any person that informs
May or its representatives that the person is considering
making, or has made, a company takeover proposal, or an inquiry
from a person seeking to have discussions or negotiations
relating to a possible company takeover proposal.
Mays board of directors will convene and hold a meeting of
May stockholders, recommend that such stockholders approve the
merger and use its reasonable best efforts to obtain such
approval. May has further agreed that neither Mays board
of directors nor any committee of Mays board of directors
will
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cause a company adverse recommendation change (as
defined below); or |
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approve or recommend, or allow May or any of its subsidiaries to
execute or enter into, any letter of intent, memorandum of
understanding, agreement in principle, merger agreement,
acquisition agreement, option agreement, joint venture
agreement, partnership agreement or other similar agreement
constituting or related to any company takeover proposal. |
A company adverse recommendation change is where the
May board of directors decides to (i) withdraw, or publicly
propose to withdraw, (or, in either case, modify in a manner
adverse to Federated) the approval recommendation or declaration
of advisability by the board of directors of the merger
agreement or (ii) recommend, adopt or approve, or propose
publicly to recommend, adopt or approve, any company takeover
proposal.
However, in the event that prior to obtaining May stockholder
approval, Mays board of directors receives a company
takeover proposal, then Mays board of directors may
(1) make a company adverse recommendation change and/or
(2) upon termination of the merger agreement and payment of
the termination fee described below, approve and enter into an
agreement relating to a company takeover proposal that
constitutes a superior proposal, if Mays board of
directors determines in good faith, after consultation with
outside counsel, that it is necessary for the proper discharge
of its fiduciary duties under applicable law to do so and if, in
either case, May provides written notice advising Federated that
the May board of directors intends to take
105
such action and specifying the reasons therefor, and negotiates
in good faith with Federated for three days following its
receipt of such notice to make such adjustments to the terms and
conditions of the merger agreement as would enable May to
proceed with its recommendation of this merger agreement and/or
not terminate the merger agreement.
The merger agreement does not prohibit May from taking and
disclosing to its stockholders, in compliance with the rules and
regulations of the Exchange Act, a position regarding any
unsolicited tender offer for May common stock or from making any
other disclosure to May stockholders if, in the good faith
judgment of the May board of directors, after consultation with
outside counsel, failure to disclose would be inconsistent with
the fulfillment of the fiduciary duties or any other obligations
of the May board of directors under applicable law.
Federateds board of directors will convene and hold an
annual meeting of Federated stockholders, recommend that such
stockholders authorize the issuance of Federated common stock in
connection with the merger and use its reasonable best efforts
to obtain such authorization. However, in the event that, prior
to obtaining Federated stockholder approval, Federateds
board of directors receives a third-party takeover proposal (as
defined below), then Federateds board of directors may
withdraw or modify or publicly propose to withdraw or modify its
recommendation of the issuance of Federated common stock in
connection with the merger, if Federateds board of
directors determines in good faith, after consultation with
outside counsel, that it is necessary for the proper discharge
of its fiduciary duties under applicable law to do so, and, in
either case, Federated provides written notice advising May that
the Federated board of directors intends to take such action and
specifying the reasons therefor, and negotiates in good faith
with May for three days following its receipt of such notice to
make such adjustments to the terms and conditions of the merger
agreement as would enable Federated to proceed with its
recommendation. A third-party takeover proposal with
respect to Federated means any bona fide written proposal or
offer from any person relating to any (A) direct or
indirect acquisition or purchase of a business that constitutes
50% or more of the net revenues, net income or the assets of
Federated and its subsidiaries, taken as a whole,
(B) direct or indirect acquisition of equity securities of
Federated representing 50% or more of the combined voting power
of Federated, (C) tender offer or exchange offer that if
consummated would result in any person beneficially owning
equity securities of Federated representing 50% or more of the
combined voting power of Federated or (D) merger,
consolidation, business combination, recapitalization,
liquidation, dissolution or similar transaction involving
Federated.
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Access to Information; Confidentiality |
During the period prior to the effective time of the merger,
Federated and May will, and will cause each of their
subsidiaries to, afford to the other party and its
representatives reasonable access during normal business hours
to all of their respective properties, books, contracts,
commitments, personnel and records, except that neither party is
required to provide the other with any information that it
reasonably believes it can not provide due to contractual
restrictions or legal restrictions, or which it believes is
competitively sensitive information. The information will be
held in confidence to the extent required by the provisions of
the confidentiality agreement between Federated and May.
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Regulatory and Antitrust Approvals and Clearances |
Federated and May have each agreed to use its reasonable best
efforts to cooperate and to take, or cause to be taken, all
actions necessary, proper or advisable to complete and make
effective the merger and the other transactions contemplated by
the merger agreement, as promptly as practicable, but in no
event later than the outside date of October 3, 2005,
unless such date is extended up to and including August 31,
2006 in circumstances described below, in The Merger
Agreement Termination of the Merger Agreement
beginning on page 113. This includes:
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obtaining all necessary actions or nonactions, waivers, consents
and approvals from governmental entities and making all
necessary registrations and filings and taking all reasonable
steps as may be |
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necessary to obtain an approval or waiver from, or to avoid an
action or proceeding by, any governmental entity; |
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the avoidance of impediments under any antitrust, merger
control, competition or trade regulation law that may be
asserted by any governmental entity; |
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obtaining all necessary consents, approvals or waivers from
third parties; |
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defending any lawsuits or other legal proceedings challenging
the merger agreement or the transactions contemplated by the
merger agreement, including seeking to have any stay or
temporary restraining order vacated or reversed; and |
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executing and delivering any additional instruments necessary to
complete the merger and the other transactions contemplated by
the merger agreement and to fully carry out the purposes of the
merger agreement. |
Federated and its subsidiaries are required to commit to any and
all divestitures, licenses or hold separate or similar
arrangements with respect to its assets or conduct of business
arrangements as a condition to obtaining any and all approvals
from any government entity for any reason in order to complete,
as promptly as practicable, the merger and other transactions
contemplated by the merger agreement to be performed or
completed by Federated and its subsidiaries. Specifically,
Federated and its subsidiaries will take any and all actions
necessary to ensure that:
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no requirement for non-action, a waiver, consent or approval of
the FTC, the Antitrust Division, any State Attorney General or
other governmental entity; |
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no decree, judgment, injunction, temporary restraining order or
any other order in any suit or proceeding; and |
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no other matter relating to any antitrust or competition law or
regulation; |
would preclude completion of the merger by August 31, 2006,
provided that in no event will Federated be required to dispose
of or hold separate assets of May, Federated or their respective
subsidiaries which, in the aggregate, accounted for annual net
sales for the most recently completed fiscal year exceeding
$4 billion.
In addition, Federated and May each agreed to:
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file as soon as practicable (after the execution and delivery of
the merger agreement) a Notification and Report Form under the
HSR Act with the FTC and the Antitrust Division, which
Notification and Report Form was filed on March 8, 2005; |
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respond as promptly as practicable under the circumstances to
any inquiries received from the FTC or the Antitrust Division
for additional information or documentation and to all inquiries
and requests received from any State Attorney General or other
governmental entity in connection with antitrust matters; |
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not extend any waiting period under the HSR Act or enter into
any agreement with the FTC or the Antitrust Division not to
complete the transactions contemplated by the merger agreement; |
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subject to applicable laws and except as may be prohibited by
any representative of any governmental entity, promptly notify
the other party of any written communication to that party from
the FTC, the Antitrust Division, any State Attorney General or
any other governmental entity, and permit the other party to
review in advance any proposed written communication to any of
the foregoing; |
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subject to applicable laws and except as may be prohibited by
any representative of any governmental entity, not agree to
participate in any substantive meeting or discussion with any
governmental entity regarding any filings, investigation or
inquiry concerning the merger agreement or the merger unless it
consults with the other party in advance and, to the extent
permitted by the governmental entity, gives the other party the
opportunity to attend and participate in the meeting; and |
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subject to applicable laws and except as may be prohibited by
any representative of any governmental entity, furnish the other
party with copies of all correspondence, filings, and written
communications, including summary memoranda, between it and its
affiliates and their respective representatives on the one hand,
and any governmental entity or members or their respective
staffs on the other hand, with respect to the merger agreement
and the merger. |
In connection with and without limiting these obligations, each
of Federated and May will take all reasonable action necessary
to ensure that no state takeover statute or similar statute or
regulation is or becomes applicable to the merger agreement or
any transaction contemplated by the merger agreement, including
the merger. If any state takeover statute or similar statute or
regulation becomes applicable to the merger agreement or any
transaction contemplated by the merger agreement, each of
Federated and May will take all action reasonably necessary to
ensure that the merger agreement and the transactions
contemplated by the merger agreement, including the merger, may
be completed as promptly as practicable on the terms
contemplated by the merger agreement and otherwise to minimize
the effect of the statute or regulation on the merger agreement
and the transactions contemplated by the merger agreement,
including the merger.
At the effective time of the merger each outstanding May stock
option and stock plan will be assumed by Federated. To the
extent provided under terms of Mays stock plans, all
outstanding options will accelerate and become immediately
exercisable in connection with the merger. Except for
acceleration in accordance with the terms of Mays stock
plans, each May stock option assumed by Federated will continue
to have the same terms and conditions as were applicable
immediately before the effective time of the merger, except that
each May stock option will be exercisable for a number of shares
of Federated common stock equal to the product of the number of
shares of May common stock issuable upon exercise of the option
immediately before the effective time of the merger multiplied
by the sum of (1) the stock consideration plus (2) the
cash consideration divided by the average closing price for a
share of Federated common stock as reported on the NYSE
Composite Transaction Reports for the ten days prior to the
closing date of the merger. In addition, the per share exercise
price of each May stock option will be equal to the quotient
determined by dividing the per share exercise price of the May
stock option by the sum of (1) the stock consideration plus
(2) the cash consideration divided by the average closing
price for a share of Federated common stock as reported on the
NYSE Composite Transaction Reports for the ten days prior to the
closing date of the merger.
For example, if an executive has options to
purchase 1,000 shares of May common stock for an
exercise price of $20 per share, and if the average
closing price of Federated common stock were $60 per
share, then the stock option conversion calculations would be as
follows:
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May Options | |
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Conversion Calculation | |
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Federated Options | |
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Options
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1,000 |
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× |
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.3115 + ($17.75/$60) = .3115 + .2958 = .6073 |
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= |
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607 options |
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Exercise price per share
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$ |
20 per share |
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÷ |
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.6073 |
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= |
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$ |
32.9326 per share |
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Aggregate exercise price
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$ |
20,000.00 |
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$ |
19,990.09* |
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* |
Aggregate exercise values fluctuate due to fractional share
rounding and rounding of exercise price. |
If, on the other hand, the average closing price of Federated
shares in the above example were $52 per share, then the
conversion factor would be .3115 + ($17.75/$52) = .3115
+ .3413 = .6528, so that the options for
1,000 shares of May stock would convert to options for
653 shares of Federated stock, and the $20 per share
exercise price would convert to a $30.6373 per share
exercise price, with an aggregate exercise price of $20,006.13.
The conversion of any May stock options which are
incentive stock options, within the meaning of
Section 422 of the Internal Revenue Code, into options to
purchase Federated common stock will be made so as not to
constitute a modification of those May stock options
within the meaning of Section 424 of the Internal Revenue
Code.
108
Federated will take all corporate action necessary to reserve
for issuance a sufficient number of shares of Federated common
stock for delivery upon exercise or settlement of the May stock
plans described above that it will assume or settle pursuant to
the merger agreement. Promptly after the effective time of the
merger, Federated will file a registration statement on
Form S-8, or other appropriate form, with respect to the
shares of Federated common stock subject to the May stock plans
and will maintain the effectiveness of such registration
statement and maintain the current status of the prospectus or
prospectuses contained in such registration statement, for so
long as the May stock options assumed by Federated remain
outstanding.
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Indemnification and Insurance |
Federated has agreed that all rights to indemnification and
exculpation, including any obligations to advance funds or
expenses, from liabilities for acts or omissions occurring at or
prior to the effective time of the merger existing in favor of
the current or former directors, officers and employees of May
and its subsidiaries, as provided in their respective
certificates of incorporation, by-laws and indemnification
agreements will be assumed by the surviving company and will
survive the merger and continue in full force and effect in
accordance with their terms, and to the fullest extent permitted
by law. In addition, Federated has agreed not to amend or
otherwise modify those rights in any manner that would adversely
affect the rights of individuals who on or prior to the
effective time of the merger were directors, officers, employees
or agents of May, unless the modification is required by law.
Federated has agreed to maintain in effect, for at least six
years after the effective time of the merger, the current May
directors and officers liability insurance policies
covering acts or omissions occurring at or prior to the
effective time of the merger with respect to those persons who
are currently covered by Mays directors and
officers liability insurance policies for (or substitute
policies of at least the same coverage and amounts containing
terms and conditions which are no less advantageous than the May
policies), provided that Federated or the surviving company will
not be required to expend in any one year an amount in excess of
300% of the annual premiums paid by May at the date of the
merger agreement for the insurance and, provided, that, if the
annual premiums exceed that amount, Federated will be obligated
to obtain a policy with the greatest coverage available for a
cost not exceeding the limit set forth above.
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Employee Benefits Matters |
Federated agreed to assume all of the May benefit plans and
honor and pay or provide the benefits required under the plans,
recognizing that the consummation of the merger or approval of
the merger agreement by Mays stockholders, as the case may
be, will constitute a change in control for purposes
of each such plan that includes a definition of change in
control.
Federated agreed to cause the surviving company to continue all
May benefit plans in accordance with their terms as in effect
immediately before the effective time of the merger until the
first anniversary of the effective time of the merger, except as
may be required under applicable law.
From the first anniversary of the effective time of the merger
until the third anniversary of the effective time of the merger,
Federated agreed to provide to those individuals who were
employees of May immediately before the effective time of the
merger (other than those subject to collective bargaining
obligations or agreements), compensation and employee benefits
substantially comparable in the aggregate to those provided to
the employees immediately before the effective time of the
merger (excluding equity-based compensation) and consider May
employees for equity-based award grants on the same basis that
similarly situated employees of Federated are considered for
such grants.
Employees of May immediately before the effective time of the
merger who are provided benefits under Federated employee
benefit plans after the merger will receive credit for their
service with May and its affiliates before the effective time of
the merger for purposes of eligibility, vesting and benefit
accrual (other than benefit accrual under a Federated defined
benefit plan) to the same extent as they were entitled, before
the effective time of the merger, to credit for service under
any similar or comparable May benefit plan.
109
For purposes of each Federated benefit plan providing medical,
dental or health benefits to any May employee described above,
Federated agreed to cause all pre-existing condition limitations
and exclusions and all actively-at-work requirements of the plan
to be waived for the employee and his or her covered dependents
(but only to the extent that the limitations, exclusions and
requirements would have been waived (or inapplicable) under the
comparable May benefit plan). Federated also agreed to cause any
eligible expenses incurred by the employee and his or her
covered dependents during the portion of the plan year of the
May plan ending on the date the employees participation in
the corresponding Federated plan begins to be taken into account
under the Federated plan for purposes of satisfying all
deductible, coinsurance and maximum out-of-pocket requirements
applicable to the employee and his or her covered dependents for
the applicable plan year as if the amounts had been paid in
accordance with the Federated plan.
Under the merger agreement, May may take such action as may be
necessary so that all unit awards granted under the Stock
Appreciation Plan of The May Department Stores Company and Its
Subsidiaries for International Employees will be settled in
cash, whether or not the units are vested at the effective time
of the merger. The amount of cash to be paid under the plan will
be calculated as an amount equal to the product of (i) the
closing price of Mays common stock on the last trading day
prior to the date on which the mer