Federated Buys May in $11 Billion Mega-Deal

Federated Department Stores Inc is to buy rival May Department Stores Co in a massive $11 billion deal that would create the largest U.S. department store chain combining well known stores such as Macy's, Marshall Field's and Bloomingdale's.

The combined company would include more than 900 department stores, in addition to David's Bridal stores and After Hours formal wear stores.

Federated said it expects a total of $1 billion in merger-related costs over the next three years. The deal is expected to add to Federated's earnings in two years time, the company said.

Under the terms of the agreement, May shareholders will receive $17.75 in cash and a 0.3115 share of Federated stock per each May share. Federated will also take on $6 billion in May debt.

In addition, Federated will raise its annual dividend to $1 a share.