[JONES DAY LETTERHEAD]
May 9, 2005
VIA EDGAR AND FEDERAL EXPRESS
Securities and Exchange Commission
Division of Corporation Finance
450 Fifth Street, N.W.
Washington, D.C. 20549
Attention: H. Christopher Owings
Assistant Director
Re: Federated Department Stores, Inc.
Registration Statement on Form S-4
Filed March 30, 2005
File No. 333-123667
Ladies and Gentlemen:
We are submitting this letter on behalf of our client Federated
Department Stores, Inc. ("Federated"), in response to comments made by the staff
of the Securities and Exchange Commission (the "Commission") in its
correspondence dated April 29, 2005 (the "Comment Letter"), to Federated with
respect to the registration statement on Form S-4 No. 333-123667 filed by
Federated with the Commission on March 30, 2005 (the "Form S-4"). Today, in
response to the Comment Letter, Federated is filing with the Commission
Amendment No. 1 to the Form S-4 ("Amendment No. 1"). We are sending under
separate cover a copy of this response letter, four courtesy copies of Amendment
No. 1, and four copies of Amendment No. 1 marked to show changes to the Form
S-4. In addition to the responses to the staff's comments, Amendment No. 1
includes other changes that are intended to update, clarify and render more
complete the information contained in the joint proxy statement/prospectus
included as part of the Form S-4.
Below are responses to each comment in the Comment Letter. For the
convenience of the staff, each of your questions is repeated before the
response. Additionally, for the convenience of the staff, the page numbers in
the responses refer to pages of the marked (rather than the clean) version of
Amendment No. 1.
Securities and Exchange Commission
May 9, 2005
Page 2
JOINT PROSPECTUS COVER PAGE / LETTER TO STOCKHOLDERS
1. PLEASE LIMIT THE DISCLOSURE HERE TO A VERY BRIEF STATEMENT, NO
LONGER THAN ONE PAGE, OF THE PURPOSE OF THE MEETINGS AND OTHER
MATERIAL INFORMATION KEY TO THE STOCKHOLDERS' DECISION. MOVE
ANY INFORMATION THAT IS NOT REQUIRED BY ITEM 501 AND IS NOT
KEY TO AN INVESTMENT DECISION TO ANOTHER PART OF THE
PROSPECTUS. FOR EXAMPLE, WE NOTE THAT THE DISCUSSION OF THE
MECHANICS OF THE MERGER BY WHICH MAY WILL BE MERGED WITH A
WHOLLY OWNED SUBSIDIARY IS NOT KEY TO AN INVESTMENT DECISION.
The joint prospectus cover page/letter to stockholders has been revised
in response to the staff's comment.
QUESTIONS AND ANSWERS ABOUT THE MERGER
SUMMARY
2. YOU CURRENTLY REPEAT INFORMATION IN YOUR QUESTIONS AND ANSWERS
AND SUMMARY. THE QUESTIONS AND ANSWERS SHOULD NOT REPEAT ANY
INFORMATION THAT APPEARS IN THE SUMMARY, AND VICE VERSA. FOR
PURPOSES OF ELIMINATING REDUNDANCIES AND GROUPING LIKE
INFORMATION TOGETHER, VIEW YOUR QUESTIONS AND ANSWERS AND
SUMMARY AS ONE SECTION. IN PARTICULAR, WE SUGGEST THAT YOU
REVISE SO THAT YOU DISCUSS ONLY THE PROCEDURAL ASPECTS OF THE
MERGER IN THE QUESTIONS AND ANSWERS AND THEREBY REDUCE THE
LENGTH OF THE QUESTIONS AND ANSWERS. PLACE SUBSTANTIVE
DISCLOSURE IN THE SUMMARY. FURTHER, FOCUS YOUR QUESTIONS ON
THOSE THAT LEND THEMSELVES TO BRIEF, FACTUAL, AND/OR YES OR NO
ANSWERS. PLEASE REVISE ACCORDINGLY. WE MAY HAVE ADDITIONAL
COMMENTS BASED UPON YOUR REVISIONS.
The Questions and Answers and Summary sections in Amendment No. 1 have
been revised in response to the staff's comment. Federated supplementally
advises the staff that the length of the Questions and Answers section is due,
in part, to the need to address, in addition to the merger, the annual meeting
proposals of each of Federated and The May Department Stores Company ("May").
3. IN THE THIRD QUESTION ON PAGE 1, EXPAND YOUR DISCLOSURE TO
DISCLOSE THE AMOUNT OF THE PREMIUM THAT THE MERGER WILL
PROVIDE TO MAY STOCKHOLDERS. IN THIS REGARD, IT APPEARS THAT
YOU SHOULD INCLUDE THE PREMIUM RELATIVE TO THE PRICE AS OF THE
DATE IMMEDIATELY PRIOR TO ANNOUNCEMENT OF THE MERGER AND NOT
ONLY THE PREMIUM AS OF JANUARY 14, 2005, AS SET FORTH IN MAY'S
REASONS FOR RECOMMENDING THE MERGER. ALSO, PLEASE EXPLAIN HOW
THE MERGER "IS CAPABLE OF CREATING MORE STOCKHOLDER VALUE THAN
EITHER MAY OR FEDERATED COULD ON ITS OWN."
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May 9, 2005
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The disclosure has been revised and moved from the Questions and
Answers section to the Summary section on pages 6 and 7 of Amendment No. 1 in
response to Comments 2 and 3.
4. IN THE DISCUSSION OF THE CONSIDERATION TO BE RECEIVED IN THE
MERGER, YOU STATE THAT "IN CERTAIN CIRCUMSTANCES" FEDERATED
MAY PAY MORE CONSIDERATION IN COMMON STOCK TO MAINTAIN THE
NON-TAXABLE STATUS OR MAY ELECT TO INCREASE THE CASH
CONSIDERATION. PLEASE CLARIFY THROUGHOUT THE DOCUMENT WHETHER
THERE ARE CIRCUMSTANCES OTHER THAN THE TOTAL VALUE OF THE
FEDERATED COMMON STOCK FALLING BELOW 40% THAT WOULD TRIGGER A
CHANGE IN PAYMENT TERMS. ALSO, DISCLOSE HOW FEDERATED WOULD
NOTIFY STOCKHOLDERS OF ANY CHANGE IN THE CONSIDERATION TO BE
RECEIVED.
Federated supplementally advises the staff that there are no
circumstances other than the total value of Federated common stock falling below
40% that would trigger a change in payment terms. The disclosure throughout
Amendment No. 1 has been revised to delete "in certain circumstances" in
response to the staff's comment. See, for example, pages 7 and 8 of Amendment
No. 1.
INTERESTS OF MAY DIRECTORS AND EXECUTIVE OFFICERS IN THE MERGER
5. RATHER THAN MERELY REFERENCING THAT CERTAIN CONFLICTS OF
INTEREST EXIST, SUMMARIZE THE EXTENT TO WHICH INSIDERS ARE
BENEFITING AS A RESULT OF THE MERGER, AND QUANTIFY IN DOLLAR
TERMS THE AGGREGATE AMOUNT OF COMPENSATORY PAYMENTS AND ALL
OTHER BENEFITS THAT ALL EXECUTIVE OFFICERS AND DIRECTORS WILL
RECEIVE AS A RESULT OF THE TRANSACTION. ALSO, PLEASE CLARIFY
THAT CERTAIN MEMBERS OF MANAGEMENT AND THE BOARD OF DIRECTORS
HAVE INTERESTS THAT "WILL" PRESENT THEM WITH ACTUAL OR
POTENTIAL CONFLICTS OF INTEREST.
The disclosure on page 13 of Amendment No. 1 has been revised in
response to the staff's comment. See also the revised disclosure on page 86 of
Amendment No. 1.
CONDITIONS TO COMPLETION OF THE MERGER
6. BRIEFLY CLARIFY WHICH CONDITIONS TO THE MERGER ARE WAIVEABLE.
PLEASE BE AWARE THAT WE GENERALLY BELIEVE THAT RESOLICITATION
IS REQUIRED WHEN COMPANIES WAIVE MATERIAL CONDITIONS TO A
MERGER.
The disclosure on page 15 of Amendment No. 1 has been revised in
response to the staff's comment. Federated and May supplementally acknowledge
the staff's general belief that resolicitation is required if either Federated
or May waives a material condition to the merger.
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May 9, 2005
Page 4
FINANCIAL SUMMARY
COMPARATIVE PER SHARE INFORMATION
7. PLEASE TELL US HOW YOU COMPUTED CASH DIVIDENDS DECLARED PER
COMMON SHARE PRESENTED IN THE PRO FORMA COMBINED DATA PER
FEDERATED COMMON SHARE COLUMN. EXPLAIN TO US HOW THE
COMPUTATION COMPLIES WITH THE REQUIREMENTS OF ITEM
14(b)(10)(II) OF REGULATION 14A. PLEASE REFER TO INSTRUCTION
2(III) OF THE INSTRUCTIONS TO PARAGRAPHS (b)(8), (b)(9) AND
(b)(10) OF REGULATION 14A.
Federated supplementally advises the staff that, in the merger
agreement, Federated has agreed to increase its quarterly dividend to $0.25 per
Federated common share upon completion of the merger. This amounts to an annual
dividend of $1.00 per Federated common share. In accordance with Item
14(b)(10)(ii) of Regulation 14A, the cash dividends declared per common share of
$0.31 was computed by multiplying the exchange ratio of 0.3115 times the pro
forma dividends per share of Federated of $1.00. In response to the staff's
comment, the computation of cash dividends declared per common share on pages 26
and 27 of Amendment No. 1 has been revised.
RISK FACTORS
CERTAIN DIRECTORS AND EXECUTIVE OFFICERS OF MAY HAVE INTERESTS AND
ARRANGEMENTS. . .
8. PLEASE IDENTIFY, TO THE EXTENT PRACTICABLE, THE DIRECTORS AND
EXECUTIVE OFFICERS OF MAY THAT HAVE INTERESTS IN THE MERGER
THAT MAY BE DIFFERENT FROM, OR IN ADDITION TO, THEIR INTERESTS
AS STOCKHOLDERS AND THE INTERESTS OF STOCKHOLDERS GENERALLY.
ALSO, STATE THAT THESE INTERESTS ARE DIFFERENT FROM THEM
INSTEAD OF INDICATING THAT THEY MAY BE DIFFERENT FROM THOSE OF
STOCKHOLDERS.
The disclosure on pages 29 and 86 of Amendment No. 1 has been revised
in response to the staff's comment.
UNDER CERTAIN CIRCUMSTANCES RELATING TO THE PRICE OF FEDERATED COMMON
STOCK . . .
9. PLEASE DISCLOSE, IF TRUE, THAT THE MAY BOARD WILL NOT REQUEST
UPDATED FAIRNESS OPINIONS IF THE CONSIDERATION TO BE RECEIVED
WILL DIFFER AS A RESULT OF A SIGNIFICANT DECLINE IN THE VALUE
OF FEDERATED COMMON STOCK.
The disclosure on page 31 of Amendment No. 1 has been revised in
response to the staff's comment.
ANTI-TAKEOVER PROVISIONS COULD DELAY, DETER OR PREVENT A CHANGE IN
CONTROL . . .
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May 9, 2005
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10. PLEASE BRIEFLY DISCUSS THE PROVISIONS IN DELAWARE LAW AND IN
FEDERATED'S CERTIFICATE OF INCORPORATION, BY-LAWS AND OTHER
AGREEMENTS THAT COULD DELAY, DETER OR PREVENT A CHANGE IN
CONTROL OF FEDERATED.
The disclosure on page 32 of Amendment No. 1 has been revised in
response to the staff's comment.
FEDERATED IS SUBJECT TO ENVIRONMENTAL PROTECTION AND HEALTH AND SAFETY
LAWS . . .
11. PLEASE EXPAND THE DISCLOSURE TO BRIEFLY HIGHLIGHT THE
ENVIRONMENTAL PROTECTION AND HEALTH LAWS TO WHICH YOU ARE
SUBJECT OR ADD A REFERENCE TO MORE DETAILED DISCLOSURE IN THIS
DOCUMENT.
Federated supplementally advises the staff that it has evaluated the
environmental risks to its ongoing operations and has determined that these
risks are not material to an investment decision. Consequently, this risk factor
has been eliminated.
FEDERATED DEPENDS UPON THE SUCCESS OF ITS ADVERTISING AND MARKETING . . .
12. WE NOTED THAT FEDERATED SPENDS A "MEANINGFUL AMOUNT" ON
ADVERTISING AND MARKETING. PLEASE QUANTIFY WHAT YOU MEAN BY
"MEANINGFUL AMOUNT."
The disclosure on page 33 of Amendment No. 1 has been revised in
response to the staff's comment.
BACKGROUND OF THE MERGER
13. PLEASE CONSIDER PROVIDING A BRIEF DESCRIPTION OF WHY MAY
RETAINED TWO FINANCIAL ADVISORS TO PROVIDE FAIRNESS OPINIONS
FOR THIS TRANSACTION. FOR EXAMPLE, WE NOTE THAT MORGAN STANLEY
MET INDEPENDENTLY WITH GOLDMAN SACHS TO DISCUSS THE TERMS OF
THE TRANSACTION AND THAT YOU DESCRIBED MORGAN STANLEY'S ROLE
THROUGHOUT THE BACKGROUND SECTION, BUT THAT YOU DID NOT
DISCUSS PJSC UNTIL THE DISCUSSION OF THE FEBRUARY 27, 2005
BOARD MEETING. PLEASE REVISE.
The disclosure on page 52 of Amendment No. 1 has been revised in
response to the staff's comment.
MAY'S REASONS FOR THE MERGER AND RECOMMENDATION . . .
FEDERATED'S REASONS FOR THE MERGER AND RECOMMENDATION . . .
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May 9, 2005
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14. FOR EACH FACTOR CITED, PLEASE ENSURE THAT IT CONTAINS ADEQUATE
DETAIL TO PLACE IT IN CONTEXT. IT IS IMPORTANT THAT
STOCKHOLDERS UNDERSTAND WHY THE BOARDS CHOSE TO PURSUE THE
MERGER. EXPAND THE FACTORS, BOTH FAVORABLE AND POTENTIALLY
UNFAVORABLE, TO PROVIDE A MEANINGFUL DISCUSSION OF EACH
BOARD'S CONSIDERATION OF EACH FACTOR. IN THIS REGARD, DESCRIBE
IN SPECIFIC TERMS WHAT IT WAS ABOUT EACH FACTOR THAT SUPPORTS
THE BOARD'S DECISION. AS EXAMPLES, CONSIDER THE FOLLOWING:
- DESCRIBE THE OTHER ALTERNATIVES REASONABLY AVAILABLE
TO MAY AS REFERENCED ON THE TOP OF PAGE 60;
- MORE CLEARLY EXPLAIN HOW THE RESULTS OF THE DUE
DILIGENCE SUPPORTED BOTH MAY AND FEDERATED'S
DECISION;
- DESCRIBE HOW THE COMBINED COMPANY WILL "ENHANCE
RELATIONSHIPS" WITH SUPPLIERS AND MALL OPERATORS AS
REFERENCED ON PAGE 60;
- BRIEFLY SPECIFY THE "LIMITATIONS" REFERRED TO ON PAGE
62 THAT LIMITS MAY'S ABILITY TO SOLICIT ALTERNATIVE
BUSINESS COMBINATIONS; AND
- DESCRIBE HOW THE HISTORICAL INFORMATION CONCERNING
MAY AND FEDERATED MENTIONED ON PAGES 60 AND 64
SUPPORTS THE MERGER.
The disclosure on pages 55 through 59 of Amendment No. 1 has been
revised in response to the staff's comment.
OPINION OF MAY'S FINANCIAL ADVISORS
OPINION OF FEDERATED'S FINANCIAL ADVISOR
15. PLEASE SUPPLEMENTALLY PROVIDE US WITH A COPY OF THE BOARD
BOOKS AND ANY OTHER MATERIALS DISTRIBUTED BY THE FINANCIAL
ADVISORS TO ASSIST THE BOARD IN EVALUATING THE TRANSACTION.
In response to the staff's request, the materials distributed by Morgan
Stanley and Peter J. Solomon Company to the May board of directors in its
evaluation of the merger and the materials distributed by Goldman Sachs to the
Federated board of directors in its evaluation of the merger are being
supplementally provided to the staff under separate cover. Please note that
these materials are being provided to the staff on a confidential, supplemental
basis in accordance with Rule 12b-4 under the Securities Exchange Act of 1934,
as amended (the "Exchange Act"), and Rule 418(b) under the Securities Act of
1933, as amended. In connection therewith, confidential treatment of such
materials has been requested, including in connection with the Freedom of
Information Act, and separate letters have been filed in connection with that
request pursuant to Rule 83 of the Commission's Rules on Information and
Requests, 17 C.F.R.
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May 9, 2005
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Section 200.83. In addition, we are requesting that at the conclusion of the
staff's review of the Form S-4 (or earlier if the staff's use is no longer
necessary), the staff return these supplemental materials as specified in such
letters.
16. AS CURRENTLY DRAFTED, THE DISCUSSION OF EACH FINANCIAL
ADVISOR'S OPINION DOES NOT PROVIDE A MEANINGFUL SUMMARY OF
EACH OF THE ANALYSES PERFORMED. PLEASE REVISE EACH OF THE
SUMMARIES SO THAT THEY ARE WRITTEN IN CLEAR, UNDERSTANDABLE
LANGUAGE. AVOID UNNECESSARY FINANCIAL TERMS THAT MAKE THE
DISCLOSURE VERY DIFFICULT TO UNDERSTAND. RATHER, EXPLAIN IN
CLEAR, CONCISE, AND UNDERSTANDABLE LANGUAGE WHAT THE FINANCIAL
ADVISOR DID AND HOW THE ANALYSIS AND CONCLUSION ARE RELEVANT
TO STOCKHOLDERS AND, SPECIFICALLY, TO THE CONSIDERATION THAT
THEY ARE RECEIVING IN THE MERGER. AS PART OF THE REVISIONS,
PLEASE DESCRIBE THE PURPOSE OF EACH ANALYSIS AND WHY
PARTICULAR MEASURES WERE CHOSEN FOR ANALYSIS. WE MAY HAVE
ADDITIONAL COMMENTS BASED UPON YOUR REVISIONS.
The disclosure on pages 61 through 86 of Amendment No. 1 has been
revised in response to the staff's comment.
17. PLEASE DISCLOSE THE DOLLAR AMOUNT OF THE FEE THAT MORGAN
STANLEY WILL RECEIVE RATHER THAN DISCLOSING THAT THE FEE WILL
BE A PERCENTAGE OF THE VALUE OF THE MERGER. WE NOTE FROM THE
DISCLOSURE ON PAGE 14 THAT MORGAN STANLEY WILL RECEIVE THE
PRINCIPAL PORTION OF THE FEE UPON COMPLETION OF THE
TRANSACTION. PLEASE DISCLOSE THE AMOUNT THAT IT HAS RECEIVED
TO DATE, INCLUDING THE TRIGGERING EVENT FOR PAYMENT OF THAT
FEE, AND THE AMOUNT IT WILL RECEIVE UPON CONSUMMATION OF THE
MERGER. ALSO, QUANTIFY THE AMOUNT OF THE COMPENSATION RECEIVED
BY MORGAN STANLEY FROM MAY AND GOLDMAN SACHS FROM FEDERATED
DURING THE LAST TWO YEARS. SEE ITEM 1015 OF REGULATION M-A.
The disclosure on page 69 of Amendment No. 1 has been revised in
response to the staff's comment. Federated supplementally advises the staff
that, during the last two years, Goldman Sachs has received no payment of fees
from Federated other than the fees paid or to be paid in connection with the
proposed merger, which fees are disclosed in Amendment No. 1. As no other fees
were paid to Goldman Sachs, Federated believes that no further disclosure is
required.
FEDERAL INCOME TAX CONSEQUENCES TO MAY STOCKHOLDERS IF THE MERGER . . .
18. WE NOTE YOUR USE OF THE WORD "GENERALLY" THROUGHOUT THIS
SECTION. FOR INSTANCE, YOU STATE THAT "CASH RECEIVED BY A
HOLDER OF MAY COMMON STOCK IN LIEU OF FRACTIONAL SHARES WILL
GENERALLY BE TREATED AS IF THE HOLDER RECEIVED . . . ." RATHER
THAN DESCRIBING THE TAX CONSEQUENCES TO MAY COMMON STOCK
HOLDERS IN
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May 9, 2005
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GENERAL TERMS, PLEASE REVISE TO PROVIDE MORE DEFINITIVE
STATEMENTS OF THE TAX CONSEQUENCES.
The disclosure on pages 96 through 98 of Amendment No. 1 has been
revised in response to the staff's comment.
MATERIAL UNITED STATES FEDERAL INCOME TAX CONSEQUENCES
19. REVISE THE LAST PARAGRAPH TO ELIMINATE THE LANGUAGE THAT THE
DISCLOSURE IS "FOR GENERAL INFORMATION PURPOSES ONLY."
The disclosure on page 98 of Amendment No. 1 has been revised in
response to the staff's comment.
THE MERGER AGREEMENT
20. WE NOTE YOUR STATEMENT THAT "THE MERGER AGREEMENT HAS BEEN
INCLUDED FOR YOUR CONVENIENCE." PLEASE PROVIDE AN ANALYSIS,
ADDRESSING ITEMS 601(b)(2) AND SECTION 251(c) OF THE DGCL,
SUPPORTING YOUR DETERMINATION THAT THE COMPANY IS NOT
OBLIGATED TO SUPPLY A COPY OF THE MERGER AGREEMENT TO THE
SHAREHOLDERS.
Federated and May respectfully submit that they are not obligated to
supply a copy of the merger agreement in the proxy statement actually mailed to
stockholders under either Item 601(b)(2) of Regulation S-K or Section 251(c) of
the Delaware General Corporation Law (the "DGCL"). Items 601(a) and 601(b)(2) of
Regulation S-K require that the merger agreement be included as an exhibit to
the registration statement on Form S-4 filed with the Commission but do not
require that the merger agreement be included in the proxy statement actually
mailed to stockholders. Section 251(c) of the DGCL requires that the merger
agreement be submitted to the stockholders of each constituent corporation at an
annual or special meeting for purposes of acting on adoption or rejection of the
merger agreement. This provision requires that the stockholders have the
opportunity to vote in favor or against the transaction provided for in the
merger agreement. The only reference in Section 251(c) to providing a copy of
the merger agreement to stockholders is a statement that the notice of the
stockholders meeting "shall contain a copy of the [merger] agreement or a brief
summary thereof, as the directors shall deem advisable." Accordingly, a copy of
the merger agreement is not required to be supplied to stockholders as part of
the proxy statement. Although not required, Federated and May have elected to
include a copy of the entire merger agreement as Annex A to the joint proxy
statement/prospectus for ease of reference by the stockholders.
21. WE NOTE YOUR STATEMENT IN THE FIRST BOLDED PARAGRAPH REGARDING
THE MERGER AGREEMENT THAT "WE DO NOT INTEND FOR ITS TEXT TO BE A
SOURCE OF FACTUAL, BUSINESS OR OPERATIONAL INFORMATION ABOUT
EITHER FEDERATED OR MAY" AND YOUR
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May 9, 2005
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DISCLOSURE IN THE FIRST BULLET POINT ON PAGE 101. INVESTORS
ARE ENTITLED TO RELY UPON DISCLOSURES IN YOUR PUBLICLY FILED
DOCUMENTS, INCLUDING THE MERGER AGREEMENT. PLEASE REVISE YOUR
DISCLOSURE TO ELIMINATE THE LANGUAGE INDICATING THAT
STOCKHOLDERS MAY NOT RELY UPON THE TERMS AND CONDITIONS OF THE
MERGER AGREEMENT.
The first bullet point that appeared on page 101 of the Form S-4 has
been deleted in response to the staff's comment (see page 99 of Amendment No.
1).
Federated and May obviously agree with the staff that investors are
entitled to rely upon disclosures in public documents. The merger agreement has
been included in the joint proxy statement/prospectus to provide stockholders
with the entire document containing all of the contractual terms and conditions
of the acquisition transaction between May and Federated. The purpose of the
revised disclosure appearing on page 99 of Amendment No. 1 is to ensure that the
information reflected in the merger agreement is presented accurately and in an
appropriate context. The inclusion of the merger agreement is not for the
purpose of providing factual, business or operational information about either
company. That information is provided elsewhere in the joint proxy
statement/prospectus (including under the headings "Summary" beginning on page 6
of Amendment No. 1, "Financial Summary" beginning on page 21 of Amendment No. 1,
"Comparative Per Share Information" beginning on page 26 of Amendment No. 1,
"Comparative Market Value Information" on page 27 of Amendment No. 1, "Risk
Factors" beginning on page 28 of Amendment No. 1, "Information about Federated"
beginning on page 118 of Amendment No. 1, "Information about May" beginning on
page 146 of Amendment No. 1, "Description of Federated Capital Stock" on page
179 of Amendment No. 1 and "Comparison of Rights of Stockholders" beginning on
page 179 of Amendment No. 1) and in each company's periodic reports required to
be filed under the Exchange Act, to which stockholders are specifically directed
in the third sentence of the first bolded paragraph. Thus, the revised
disclosure on page 99 of Amendment No. 1 is intended to provide stockholders
with the proper context for the agreement in conjunction with the business and
operational information provided elsewhere.
Federated and May believe the inclusion of the revised disclosure on
page 99 of Amendment No. 1 is consistent with recently published releases from
the Commission as well as recent public statements made by representatives of
the Commission regarding representations in merger agreements appearing in proxy
statements. In Securities Exchange Act of 1934 Release No. 51283, March 1, 2005
(the "Titan Report"), which is a Report of Investigation relating to Titan
Corporation, it is stated that "This Report highlights for issuers their
responsibility to ensure that disclosures regarding material contractual
provisions such as representations are not misleading. When an issuer makes a
public disclosure of information - via filing a proxy statement or otherwise -
the issuer is required to consider whether additional disclosure is necessary in
order to put the information contained in, or otherwise incorporated into that
publication, into context so that such information is not misleading ...
Depending on the context
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May 9, 2005
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in which the disclosure is made ... a reasonable investor could conclude that
the statements made in the representation describe the actual state of affairs
and the information could be material." See also Litigation Release No. 19107,
March 1, 2005; Accounting and Auditing Enforcement Release No. 2204, March 1,
2005 (making similar statements relating to Titan Corporation). It is in this
context and for these reasons that Federated and May included the revised
disclosure on page 99 of Amendment No. 1 so that stockholders would have a
proper context and complete mix of information with which to evaluate
contractual representations in the merger agreement. The revised disclosure
appropriately informs stockholders that such specific information about the
companies can be found elsewhere in the proxy statement and in filings
incorporated by reference into the proxy statement.
Federated and May also believe the inclusion of the revised disclosure
on page 99 of Amendment No. 1 is consistent with statements we understand were
made by the Director of the Division of Corporation Finance of the Commission on
April 1, 2005, at a meeting of the Committee on Federal Regulation of
Securities, Section of Business Law, American Bar Association. At the meeting,
we understand the Director stated, in substance, that the issue raised by the
Titan Report was whether a reasonable investor could conclude, based on the
total mix of information, that the representations in the merger agreement
between the two companies should be construed as statements of fact and that the
Titan Report does not say that an investor is entitled to such a conclusion or
that such representations are for the benefit of investors. In addition, in
response to a statement from an attendee at such meeting who indicated that some
practitioners are advising clients to include disclosure in proxy statements to
warn investors that the representations in merger agreements should not be taken
as statements of fact, the Director indicated he did not object if a company
believes that it is right to provide such additional disclosure.
For the reasons stated above, Federated and May respectfully submit
that the revised disclosure appearing on page 99 of Amendment No. 1 is
appropriate.
22. WE REFER TO YOUR DISCLOSURE IN THE SECOND BULLET POINT ON PAGE
101. YOUR GENERAL DISCLAIMER REGARDING THE ACCURACY OF THE
DISCLOSURE IN THE MERGER AGREEMENT AND QUALIFICATION BY
REFERENCE TO OTHER DISCLOSURE IS INAPPROPRIATE. IF SPECIFIC
MATERIAL FACTS EXIST THAT CONTRADICT THE DISCLOSURE REGARDING
THE REPRESENTATIONS OR WARRANTIES IN THE MERGER AGREEMENT
PLEASE DISCLOSE.
In response to the staff's comments, the second bullet point that
appeared on page 101 of the Form S-4 has been deleted and additional disclosure
has been provided on page 102 of Amendment No. 1 to indicate in the summary of
the merger agreement that the representations are qualified by information each
company has filed with the SEC (and directs readers to the SEC website) and by
the disclosure letter each company delivered to the other immediately prior to
signing the merger agreement. This additional disclosure is appropriate as it
accurately reflects the terms of the merger agreement. Federated and May believe
they have complied with
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May 9, 2005
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their disclosure obligations under the federal securities laws with respect to
both the joint proxy statement/prospectus and the filings incorporated by
reference into the joint proxy statement/prospectus.
Federated and May respectfully inform the staff they understand their
obligations under applicable securities laws to provide updated disclosure
regarding changes in specific information about either company and will continue
to fulfill these obligations.
23. WE NOTE YOUR DISCLOSURE IN THE LAST PARAGRAPH ON PAGE 101 THAT
INFORMATION CONCERNING OR QUALIFYING THE REPRESENTATIONS AND
WARRANTIES SINCE THE DATE OF THE MERGER AGREEMENT MAY HAVE
BEEN INCLUDED IN A FILING WITH THE SEC AFTER THE DATE OF THE
MERGER AGREEMENT. TO THE EXTENT THE DISCLOSURE IN THE MERGER
AGREEMENT HAS CHANGED OR IS NO LONGER ACCURATE YOU HAVE AN
OBLIGATION TO REVISE YOUR PUBLIC DISCLOSURE. PLEASE REVISE AS
APPROPRIATE.
The disclosure on page 99 of Amendment No. 1 has been revised by
deleting this paragraph in response to the staff's comment.
24. PLEASE FILE AS AN EXHIBIT A LIST IDENTIFYING THE CONTENTS OF
THE OMITTED CONFIDENTIAL DISCLOSURE LETTERS. SEE ITEM
601(B)(2) OF REGULATION S-K.
A list identifying the contents of the omitted confidential disclosure
letters has been included on page A-4 of Annex A to Amendment No. 1 in response
to the staff's comment.
CONDITIONS TO COMPLETION OF THE MERGER
25. PLEASE CLARIFY WHICH CONDITIONS MAY BE WAIVED.
The disclosure on page 115 of Amendment No. 1 has been revised in
response to the staff's comment. See also the response to Comment 6.
26. PLEASE CLARIFY WHICH CONDITIONS HAVE BEEN SATISFIED AND UPDATE
THE STATUS OF OTHERS, AS APPROPRIATE.
The disclosure on pages 113 and 114 of Amendment No. 1 has been revised
in response to the staff's comment.
PRO FORMA FINANCIAL DATA
UNAUDITED PRO FORMA FINANCIAL STATEMENTS OF FEDERATED
GENERAL
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May 9, 2005
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27. WE NOTE THAT PRO FORMA ADJUSTMENTS DO NOT INCLUDE AN
ALLOCATION TO MERCHANDISE INVENTORIES TO REFLECT ESTIMATED
SELLING PRICES LESS THE SUM OF COSTS OF DISPOSAL AND A
REASONABLE PROFIT ALLOWANCE FOR THE SELLING EFFORT. PLEASE
REFER TO PARAGRAPH 37(c)(1) OF SFAS 141. PLEASE TELL US WHY
THE BOOK VALUE OF MAY'S MERCHANDISE INVENTORIES APPROXIMATE
ESTIMATED FAIR VALUE OR REVISE YOUR PURCHASE PRICE ALLOCATION
TO COMPLY WITH PARAGRAPH 37(c)(1) OF SFAS 141. IF YOU REVISE
YOUR PURCHASE PRICE ALLOCATION, PLEASE TELL US HOW YOU
DETERMINED:
- THE AMOUNT ALLOCATED TO MERCHANDISE INVENTORIES; AND
- THE AMOUNT OF THE RELATED ADJUSTMENT TO COST OF SALES
OR TELL US WHY A PRO FORMA ADJUSTMENT TO COST OF
SALES IS NOT REQUIRED AND THE BASIS FOR THAT
DETERMINATION.
Federated supplementally advises the staff that it has recorded an
adjustment to merchandise inventories to reflect estimated selling prices less
the sum of costs of disposal and a reasonable profit allowance for the selling
effort. The adjustment has been amortized, in its entirety, based on inventory
turnover, in the Unaudited Pro Forma Consolidated Statement of Income for the
Fiscal Year Ended January 29, 2005, in order to reflect a reasonable profit
margin on acquired inventory.
In response to the staff's comment, Federated has revised the Unaudited
Pro Forma Financial Statements to include a purchase price adjustment to
merchandise inventories on page 172 of Amendment No. 1.
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
28. PLEASE DISCLOSE THE POSSIBLE OUTCOMES AND POSSIBLE IMPACTS OF
THE CONTINGENCIES THAT COULD CHANGE THE STRUCTURE OF THE
MERGER AND THE CONSIDERATION PAYABLE TO MAY STOCKHOLDERS.
The disclosure on page 173 of Amendment No. 1 has been revised in
response to the staff's comment.
29. PLEASE DISCLOSE IN MORE DETAIL THE BASIS OF YOUR ALLOCATION TO
PROPERTY AND EQUIPMENT AND THE NATURE OF INTERNAL AND EXTERNAL
ASSESSMENTS OF VALUE PERFORMED INCLUDING WHETHER THE
ASSESSMENTS WERE BASED ON REPLACEMENT COST AND/OR APPRAISALS.
PLEASE TELL US WHY YOUR PRELIMINARY ASSESSMENTS OF VALUE
INDICATE THAT THE BOOK VALUE OF FURNITURE, FIXTURES, EQUIPMENT
AND OTHER PROPERTY APPROXIMATE FAIR VALUE.
Federated supplementally advises the staff that the purchase price was
allocated to property and equipment, with the exception of recent May
acquisitions, using an industry-
Securities and Exchange Commission
May 9, 2005
Page 13
specific income capitalization approach. Furniture, fixtures and equipment,
which generally have short lives and relatively modest residual values, were
determined to have fair values that approximated book values.
Federated is in the process of identifying and engaging the appropriate
independent resources to perform an appraisal of all tangible and intangible
assets. However, such information is not currently available to be included in
the Unaudited Pro Forma Financial Statements.
In response to the staff's comment, Federated has expanded the
disclosure for the basis of purchase price allocations to property and equipment
on page 174 of Amendment No. 1.
30. PLEASE DISCLOSE IN MORE DETAIL THE TRADE NAMES THAT YOU HAVE
IDENTIFIED AND DETERMINED TO HAVE INDEFINITE USEFUL LIVES.
PLEASE ALSO DISCLOSE IN MORE DETAIL THE BASIS OF YOUR
ALLOCATION TO INTANGIBLE ASSETS. PLEASE TELL US WHY ASSIGNING
INDEFINITE LIVES TO ALL IDENTIFIED TRADEMARKS IS APPROPRIATE.
PLEASE ALSO TELL US WHAT CONSIDERATION YOU GAVE TO IDENTIFYING
OTHER INTANGIBLE ASSETS SUCH AS FAVORABLE LEASES AND
RELATIONSHIPS WITH SUPPLIERS.
Federated supplementally advises the staff that Federated identified a
certain store tradename as the only intangible asset with an indefinite life.
Federated's current strategy is to rebrand the other store tradenames with a
current Federated tradename. The value assigned to the tradename was estimated
using relative value comparisons with prior acquisitions adjusted for
anticipated geographic usage. The tradename was deemed to have an indefinite
useful life because it has already been in use for decades, its value has grown
during its period of historical use, and Federated has not identified any legal,
regulatory, contractual, competitive, economic or other factors that would tend
to limit its remaining useful life.
Federated also identified the David's Bridal tradename as an intangible
asset subject to amortization. The fair value of this tradename was based upon
May's book value. Federated believes that the remainder of the amortization
period selected by May continues to be the best estimate of the tradename's
remaining useful life. Since David's Bridal was recently acquired by May, it was
determined that the fair value of the tradename would approximate book value and
that the remaining useful life of the tradename as identified by May would
continue to be the best estimate of the tradename's remaining useful life.
Amortization of the David's Bridal tradename is included in May's historical
financial statements.
Consideration was given to identifying other intangible assets such as
favorable leases and relationships with suppliers. The fair value of operating
leases was included in the estimate of the adjustment to fair value of property
and equipment, as it is one of the factors included in the income capitalization
approach. Based on the lack of exclusivity of May's relationships with
Securities and Exchange Commission
May 9, 2005
Page 14
its suppliers, Federated does not believe that establishing an intangible asset
subject to amortization for such relationships is factually supportable at this
time.
In response to the staff's comment, the disclosure relating to the
preliminary allocation to identifiable intangible assets on pages 174 and 175 of
Amendment No. 1 has been expanded and revised.
31. WE NOTE THAT YOU PLAN TO ALLOCATE $310 MILLION TO ACQUIRED
TRADE NAMES WITH AN INDEFINITE USEFUL LIFE. WE FURTHER NOTE
THAT MAY ACQUIRED MARSHALL FIELDS AS OF THE END OF JULY 2004
AND THAT IT VALUED THE TRADE NAMES ACQUIRED IN THAT
ACQUISITION AT $419 MILLION. PLEASE EXPLAIN TO US WHY YOU
BELIEVE THAT THERE HAS BEEN A DECLINE IN THE VALUE OF THE
TRADE NAMES ACQUIRED IN CONJUNCTION WITH THE MARSHALL FIELDS
TRANSACTION.
Federated supplementally advises the staff that Federated has assessed
all tradenames currently maintained by May and has reduced their value to
reflect Federated's anticipated geographic usage of the tradenames where such
usage differs significantly from May's usage. This is consistent with
Federated's overall rebranding strategy.
32. WE NOTE THAT MAY HAS APPROXIMATELY $188 MILLION (GROSS) IN
AMORTIZABLE TRADE NAMES AS OF DECEMBER 31, 2004. PLEASE TELL
US WHAT IS REPRESENTED BY THESE TRADE NAMES AND WHY YOU
BELIEVE THAT THEY NO LONGER HAVE VALUE.
Federated supplementally advises the staff that the May amortizable
tradenames represented tradenames associated with David's Bridal and its
subsidiaries. The revised amount allocated to the David's Bridal tradename is
$142 million, based on its historical net book value, which is Federated's
current best estimate of its fair value. This differs from the amount recognized
by May for amortizable tradenames because the amount recognized by May includes
tradenames that are not anticipated to have the same future utility to
Federated. As previously noted, amortization of the David's Bridal tradename is
included in May's historical financial statements.
33. PLEASE TELL US THE PRO FORMA ADJUSTMENTS YOU CONSIDERED IN
YOUR CALCULATION OF THE ESTIMATE OF DEFERRED INCOME TAXES IN
ADJUSTMENT (B7).
The pro forma adjustments considered in the calculation of deferred
income taxes as included in (b8) (formerly (b7)) include:
Elimination of May's historical identifiable intangible assets 602
Estimate of adjustment to fair value of merchandise inventories (93)
Estimate of adjustment to fair value of property and equipment (785)
Estimate of adjustment to fair value of identifiable intangible assets (430)
Securities and Exchange Commission
May 9, 2005
Page 15
Estimate of adjustment to fair value of pension and post-retirement obligations 212
Estimate of adjustment to fair value of assumed long-term debt 712
-----
218
Estimated combined rate 38%
-----
Estimate of deferred taxes on adjustments at combined rate of 38% 83
=====
In response to Comment 27, the disclosure regarding the allocation of
the estimated consideration on pages 173 and 174 of Amendment No. 1 has been
revised.
34. PLEASE DISCLOSE THE FACTORS THAT CONTRIBUTED TO A PURCHASE
PRICE THAT RESULTED IN THE RECOGNITION OF SIGNIFICANT
GOODWILL.
The disclosure on page 175 of Amendment No. 1 has been revised in
response to the staff's comment.
FEDERATED UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF INCOME
35. WE NOTE IN YOUR CURRENT DISCLOSURE THAT YOU PROVIDE A
SENSITIVITY ANALYSIS FOR HYPOTHETICAL CHANGES TO YOUR PURCHASE
PRICE ALLOCATION TO TANGIBLE AND INTANGIBLE ASSETS. PLEASE
REVISE TO PRESENT A SEPARATE SENSITIVITY ANALYSIS WITH RESPECT
TO PROPERTY AND EQUIPMENT AND AMORTIZING INTANGIBLE ASSETS.
The disclosure relating to the sensitivity analysis on page 177 of
Amendment No. 1 has been revised in response to the staff's comment rather than
including an additional chart with identical data.
MAY UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF INCOME
36. PLEASE DISCLOSE EACH OF THE RECLASSIFICATIONS MADE TO THE
HISTORICAL PRESENTATION OF MAY TO CONFORM TO THE PRESENTATION
USED IN THE FEDERATED UNAUDITED PRO FORMA CONSOLIDATED
STATEMENT OF INCOME.
The disclosure on page 178 of Amendment No. 1 has been revised in
response to the staff's comment.
WHERE YOU CAN FIND MORE INFORMATION
37. PLEASE PROVIDE THE INFORMATION REQUIRED BY ITEM 11(a)(3) OF
FORM S-4.
The disclosure on page 188 of Amendment No. 1 has been revised in
response to the staff's comment.
Securities and Exchange Commission
May 9, 2005
Page 16
EXHIBITS
38. WE ENCOURAGE YOU TO FILE ALL EXHIBITS WITH YOUR NEXT AMENDMENT
OR OTHERWISE FURNISH US DRAFTS OF TAX OPINIONS. WE WILL REVIEW
THE EXHIBITS BEFORE THE REGISTRATION STATEMENT IS DECLARED
EFFECTIVE, AND WE MAY HAVE ADDITIONAL COMMENTS.
Federated supplementally advises the staff that all exhibits not filed
with the Form S-4 are being filed with Amendment No. 1.
EXHIBIT 5.1
39. WE NOTE THE LAST SENTENCE IN PARAGRAPH 7. PLEASE SPECIFY THE
MATERIAL FACTS FOR WHICH COUNSEL HAS RELIED ON THE STATEMENTS
AND REPRESENTATIONS OF THE OFFICERS AND OTHER REPRESENTATIVES
OF FEDERATED AND OTHERS FOR VERIFICATION.
The last sentence in paragraph 7 of the legal opinion has been deleted
in response to the staff's comment.
OPINION OF PETER J. SOLOMON COMPANY L.P. (ANNEX C)
40. WE NOTE THE LIMITATION ON RELIANCE BY STOCKHOLDERS IN THE
PENULTIMATE PARAGRAPH OF THE FAIRNESS OPINION PROVIDED.
BECAUSE THE LIMITATION IS INCONSISTENT WITH THE DISCLOSURES
RELATING TO THE OPINION, THE LIMITATION SHOULD BE DELETED.
ALTERNATIVELY, DISCLOSE THE BASIS FOR YOUR BELIEF THAT
STOCKHOLDERS CANNOT RELY UPON THE OPINION TO SUPPORT ANY
CLAIMS AGAINST YOU ARISING UNDER APPLICABLE STATE LAW.
DESCRIBE ANY APPLICABLE STATE-LAW AUTHORITY REGARDING THE
AVAILABILITY OF SUCH A POTENTIAL DEFENSE. IN THE ABSENCE OF
APPLICABLE STATE-LAW AUTHORITY, DISCLOSE THAT THE AVAILABILITY
OF SUCH A DEFENSE WILL BE RESOLVED BY A COURT OF COMPETENT
JURISDICTION. ALSO, DISCLOSE THAT A RESOLUTION OF THE QUESTION
OF THE AVAILABILITY OF SUCH A DEFENSE WILL HAVE NO EFFECT ON
THE RIGHTS AND RESPONSIBILITIES OF THE BOARD OF DIRECTORS
UNDER APPLICABLE STATE LAW. FURTHER DISCLOSE THAT THE
AVAILABILITY OF SUCH A STATE-LAW DEFENSE TO YOU WOULD HAVE NO
EFFECT ON THE RIGHTS AND RESPONSIBILITIES OF EITHER YOU OR THE
BOARD OF DIRECTORS UNDER THE FEDERAL SECURITIES LAWS.
Peter J. Solomon Company has revised its fairness opinion appearing in
Annex C to Amendment No. 1 in response to the staff's comment.
Securities and Exchange Commission
May 9, 2005
Page 17
If you have any questions regarding these responses or any further
comments, please contact the undersigned at (216) 586-7254, or in his absence
Lyle Ganske at (216) 586-7264, each of Jones Day.
Sincerely,
/s/ Christopher J. Hewitt
Christopher J. Hewitt
Jones Day
cc (w/o encl.): William Thompson, Securities and Exchange Commission
Mike Moran, Securities and Exchange Commission
Howard Baik, Securities and Exchange Commission
Ellie Quarles, Securities and Exchange Commission
Dennis J. Broderick, Esq., Federated Department Stores, Inc.
Lyle G. Ganske, Esq., Jones Day
Alan E. Charlson, Esq., The May Department Stores Company
J. Michael Schell, Esq., Skadden, Arps, Slate, Meagher &
Flom LLP
Neil P. Stronski, Esq., Skadden, Arps, Slate, Meagher &
Flom LLP