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Federated Department Stores hopes to improve its fortunes by swallowing troubled rival R.H. Macy & Co., dramatically boosting market share in the erratic department store industry.

The proposed merger, initiated last week by Federated's feisty Chairman Allen I. Questrom, would create the world's largest department store conglomerate, though not all parts of that empire would be healthy.

Macy's is in Chapter 11 bankruptcy reorganization and posted losses of $544 million for fiscal 1993, with 111 department stores and 96 specialty stores; the company also plans to start a TV home shopping channel this year.

Federated, with 219 department stores under its wing, including Bloomingdale's, Jordan Marsh, and Lazarus, last week acquired 50% of creditor Prudential Insurance Co. of America's claim to Macy's for $499.3 million, with an option to buy the remaining 50%.

Department store sales are brightening, said Chicago retail analyst N. Richard Nelson of Duff & Phelps, but stores with a heavy emphasis on apparel continue to struggle. Macy's is no exception.

The acquisition could help Macy's prospects and improve economies of scale that may be good news for Federated's bottom line.

"There are enormous savings to be achieved [from a merger], which will give them the competitive edge they need," Kurt Barnard, president of Barnard's Retail Consulting Group, New York, said of Federated's plan.M

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