The Melodrama At Macy's

Did you miss Manhattan's fashion show extravaganza in mid-April? Are tickets for the Letterman show unavailable? Don't worry. You still can grab an orchestra seat at one of the biggest shows in town: The battle for R.H. Macy & Co., the department-store chain that is now entering its 29th month of operating in bankruptcy.

The plot's too confusing, you say? You're not the only one who thinks so: Even some of the players don't seem sure of their roles. They're a diverse bunch--everyone from celebrities and former Cabinet members to the usual contingent of power brokers. Adding to the disorder, they all seem to be reading from different scripts.

Every show needs a playbill, so here's BUSINESS WEEK's take on the Macy's drama and its major players:

At center stage is CBS Inc. Chairman Laurence A. Tisch, a Macy's board member. Loews Corp., of which Tisch is chairman, owns roughly $52 million worth of Macy's junk bonds, plus 2.3 million shares, or 17.7%, of its preferred stock. Several other Macy's directors also have big investments. So Tisch has enlisted allies on the board, including Louis Page, who represents Hong Kong billionaire Sir Run Run Shaw, and Harold M. Williams, CEO of the J. Paul Getty Trust.

Tisch and company are struggling bitterly with Fidelity Investments and Prudential Insurance Co.--senior creditors, each holding about $500 million worth of Macy's senior debt. Led by Fidelity's Daniel Harmetz, they say Macy's is worth less than the $3.6 billion that Macy's mild-mannered chairman, Myron E. Ullman III, says it is.

Why is that? In a strange plot twist, the less Macy's is valued at when it leaves bankruptcy, the more the senior creditors get. That's because senior creditors likely will be paid off mainly in stock. And the less stock that is issued, the more their portion will be worth.

Tisch and pals, in contrast, want Macy's valued as high as possible. They might get nothing for their junk debt if Macy's emerges from bankruptcy at $3.6 billion. But if it's valued at, say, $4 billion, they'll at least get something.

The latest shift in the script: At a Macy's board meeting on Apr. 18, Tisch and Page said they might try to buy Macy's. Tisch tried once before. But he failed to negotiate a deal to pay off the Pru's debt, and Macy's toppled into Chapter 11 in January, 1992.

SILLS TRILLS? Who in all this doesn't have an ax to grind? The celebrities, of course--such as board member Beverly Sills Greenough, the former opera diva. She is playing it down the middle: She's said to agree with Ullman's assessment of Macy's value. Henry A. Kissinger's position isn't known, but as an honorary board member he doesn't have a vote anyway. Cyrus Vance, another former Secretary of State, is mediating the Macy's case.

This is a '90s tale, but there is one raider involved. He's Allen Questrom, chief executive of rival Federated Department Stores Inc. Federated touched off the latest round of jockeying for the department-store chain in January, when it bought a big piece of senior debt from the Pru. It now hopes to come away owning Macy's.

How will it all play out? The chances of Macy's staying independent are "looking more remote all the time," says Duff & Phelps Investment Management Co. analyst Barbara Wedelstaedt. But who's complaining? The show might even end with an aria by Sills.