Goodwill Writedown on Macy's purchase of May makes sense

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Implications:
1) Macy's admits it overpaid for May merger

2) Why was goodwill valued where it was, when Macy's plan was to change all the regional nameplates to Macy's?

3) Do it now; make the move while reduced investor expectations are in place.

Analysis:
Macy's expected move to write down over $3 Billion of goodwill from the May Dept Stores merger/acquisition makes sense in light of the current economic climate and the performance of the firm.

Macy's admits it overpaid for May, but 2005 was a completely different economic climate than they are operating in now. One question about the merger, though; if you were going to take the stable of respected regional Department Store brands nameplates that May controlled (Burdine's and Marshall Field as examples), and then change the name to Macy's to create a National Department store chain, shouldn't you have looked at the goodwill valuation a little more critically?

Macy's was purchasing goodwill, and then spending to rebrand and reposition the assets that they paid to acquire the goodwill for. They "Double-dipped" on the goodwill, overpaying for brand goodwill and continuity, and then paying to remake the "overvalued" brands into Macy's.

In order to put it all behind them the writedown should be as soon and as large as they dare. Retailers, and department stores in particular, are suffering in the consumer spending slowdown. The faster and larger the adjustment made, the better position Macy's will be in to benefit from any uptick in consumption.