Federated's Acquisition and Bankruptcy: Lessons and Implications


This paper combines the analyses in my two previous papers on the Federated acquisition, Campeau's Acquisition of Federated: Value Created or Value Destroyed?, and Campeau's Acquisition of Federated. Post-Bankruptcy Results by comparing the value of Federated Department Stores (Federated) before its purchase by Campeau Corporation (Campeau) to its postbankruptcy value. Federated's assets increased in value by $3.1 billion in 1992 dollars (or $1.6 billion in 1987 dollars). The Federated purchase illustrates that a highly leveraged transaction can increase value, but still be unable to meet its debt obligations. The postbankruptcy value, which includes all direct and indirect costs of bankruptcy and financial distress, roughly equals Federated's value before it filed for bankruptcy protection. The analysis, therefore, also illustrates that bankruptcy (and financial distress) need not be costly. The paper concludes by considering the implications of these findings for the Chapter 11 process, and, more generally, for financial distress.


Macy's Inc., Acquisitions and mergers, Bankruptcy law, Valuation, Bankruptcy reorganization



Steven N. Kaplan (University of Chicago)



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