Federated buys Fingerhut
Department store operator pays $1.7B cash for catalog, e-commerce firm
NEW YORK (CNNfn) - Federated Department Stores, which operates such chains as Macy's and Bloomingdale's, got into Internet commerce in a big way Thursday by buying catalog and Internet retailer Fingerhut Cos. for approximately $1.7 billion cash.
In the deal, Fingerhut (FHT) shareholders will receive $25 per share, a substantial premium over the stock's Wednesday close of $18.81.
Both companies' boards already have approved the merger, and officials are optimistic about their combined prospects.
"This is an excellent opportunity for Federated (FD) and Fingerhut because our businesses and core competencies complement each other so well," James M. Zimmerman, Federated chairman and CEO, said.
Department stores get Webby
One of the chief ways the companies expect to complement each other is through pooling their Internet expertise.
"Really, the reason Federated is buying Fingerhut is for our Internet marketing capabilities," Fingerhut President William Lansing told CNNfn.
The merger will allow both companies to deepen their commitment to the burgeoning retail channel of electronic commerce.
"This represents a major step of one of the preeminent retailers into the Internet," said Lansing. "We aspire to nothing less than to be the major retailer on the Net."
With annual sales of $15.8 billion, Federated is one of the largest U.S. retailers, dwarfing the revenue of purely online stores like Amazon.com (AMZN), which brought in $609 million in 1998.
Even though its total annual revenue of $2 billion is a fraction of Federated's, Fingerhut is a comparatively big fish in the electronic pond, and the two companies expect to leverage their bricks-and-mortar sales online soon.
"This will be the big year," Lansing said. "We have 31 million customers, and they're deeply loyal. The average customer stays with us for seven years."
Lansing said the companies will operate their various retail sites in "some kind of conjunction . . . probably merging customer databases" and servicing customer relationships together.
Federated currently operates electronic commerce sites for its Macy's and, recently, its Bloomingdale's chains.
However, the majority of its brands -- which include The Bon Marche, Burdines, Goldsmith's, Rich's, Stern's and Lazarus - don't yet have Internet retail capability.
The merger will allow Fingerhut to pursue its aggressive program of consolidating smaller Internet retail sites.
"This relationship will provide Fingerhut with the capital to more rapidly expand our e-commerce efforts," Fingerhut Chairman and CEO Ted Deikel said.
The company currently holds minority stakes in four Web retail stores ranging from PC Flowers & Gifts to outdoor retailer The Zone Network.
"The other part of our Internet strategy is to pick up equity stakes in other Internet retail companies," Lansing said. "We plan to continue that . . . the merger gives us the resources to continue to invest in the Internet space."
Lansing told CNNfn that Fingerhut is working on a number of equity deals, with at least one nearing completion as early as next week.
Fingerhut will operate as a wholly owned subsidiary of Federated, the companies said.
Federated shares climbed 1/2 to 46-3/8 in early Thursday trading, while Fingerhut soared 5-11/16 to 24-1/2, a new 52-week high.
-- by staff writer Robert Scott Martin