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Legendary retailing rivals Bloomingdale's and Macy's are celebrating their agreement to merge, but newspapers across the U.S. are quivering in fear.

After fighting for seven months to remain independent, R.H. Macy & Co. agreed last week to be acquired by Bloomies parent Federated Department Stores.

The new behemoth would be the nation's No. 1 department store operator, with more than 300 stores in 26 states, representing 11 chains and more than $13 billion in annual revenue.

Federated/Macy's clout in merchandising and media buying would be unprecedented, say retail industry insiders, who believe it may drive down newspaper ad prices and heighten competitive tensions in the retail industry.

Together, Federated and Macy's spent $390.8 million in advertising last year, with 86% going to newspapers, according to Competitive Media Reporting.

Massive cutbacks inside both companies are inevitable, and major changes are expected in the way the department stores handle local TV and print ads.

Insiders say up to 20 stores likely will be sold or renamed within a year, streamlining advertising in those markets. Ad spending in markets where the two companies compete is expected to be reduced.

The deal would give creditors of Macy's, now in Chapter 11 bankruptcy protection, $4.1 billion in cash, debt and stock. Though creditors are owed $6 billion, the deal is attractive because Federated's stock value will be enhanced by Federated's plan to cut more than $100 million from overall costs.

"Sure [we're concerned]. What newspaper could say they're not?" said Chiara Coletti, VP-public affairs for Newsday, which lists Macy's and Federated's Bloomingdale's, Abraham & Straus and Stern's as major advertisers. "We anticipate that competition between Federated and Macy's would be lessened, if not eliminated. That will have an impact on shoppers, merchandise and have a negative impact on media-especially newspapers."

"Without a doubt, it is going to have a negative impact on newspaper revenue," said Bob Zach, senior VP-media director at Chiat/Day, New York. "The consolidation of billings will give the single entity negotiation clout. The differential [ad discount] would be in the single digits, maybe 8% or 9%, but that's a significant amount of space to a single newspaper."

Some observers believe advertising won't suffer in markets including New York, Atlanta and Minneapolis, where Federated keeps competing stores open.

"Bloomingdale's and Macy's have two different audiences, and they have nothing to gain by cutting back on newspaper or event advertising," said Sid Doolittle, a partner with Chicago-based McMillan/Doolittle.

Competing retailers see opportunities opening up as a result of the Federated/Macy's merger. Dayton Hudson Corp., Minneapolis, is eyeing Macy's stores in Atlanta, along with Dillard Department Stores, as both seek entry to that market, said Neil Thall, an Atlanta-based retail consultant.

Christy Fisher contributed to this story.

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