May Department Stores Co. (MAY) shares rose almost 9 percent Thursday after a published report said the big retailer was in preliminary talks to be acquired by larger rival Federated Department Stores Inc. (FD).

A deal between the two companies would create a retailer with $30 billion in combined sales and nearly 1,000 department stores including Bloomingdale's (search), Macy's, Lord & Taylor and Marshall Field's.

The Wall Street Journal, citing unidentified people familiar with the talks, said the discussions are at a delicate stage and cautioned that there is no guarantee a deal will be reached.

May shares rose $2.70, or 8.6 percent, to $34.07 on the New York Stock Exchange (search), after surging nearly 12 percent in early morning trading. Federated shares fell $1.23, or 1.23 percent, to $55.85.

Federated's spokeswoman Carol Sanger and May spokeswoman Sharon Bateman both declined comment Thursday.

The report comes amid a consolidation drive in the U.S. retailing industry as companies try to reduce costs and gain size to compete more effectively with the industry leader, Wal-Mart Stores Inc. Last fall, Kmart Holding Corp. (KMRT) agreed to buy Sears, Roebuck & Co. for $11.5 billion.

The Journal said the value of a possible deal between Cincinnati-based Federated and St. Louis-based May isn't clear.

Federated has 459 stores including Bloomingdale's and Macy's, while May operates about 500 department stores including Filene's, Famous-Barr as well as Marshall Field's and Lord & Taylor.

Jeffrey R. Stinson, an analyst who follows Federated, said Thursday that a possible merger would make sense because the companies would be able to wring savings out of their combined retail systems and merchandise buying clout.

"It creates a national department store chain merging Federated's very strong merchandising skills with the operational strengths that May has had," said Stinson, of FTN Midwest Research in Cleveland. "I think there would be some cost savings."

But Dan Hess, president and chief executive of Merchant Forecast, a New York-based independent research company, disagreed.

"I don't think it is a good thing for either company. And it's not good for the consumer," he said.

Hess noted that the combination would create homogenous merchandise, which would spell bad news for the department stores.

"Instead of two points of view, we will have one point of view," he noted. He added that the only good news would be for mass merchants like Target and Wal-Mart, which would benefit from real estate opportunities in markets where the two department stores overlap.

Hess also believes that both merchants already use a considerable amount of clout to get the lowest prices from their vendors, so there won't be much room to go lower.

Federal antitrust regulators likely will closely examine such a merger to determine whether it would restrict retail competition. But given the rise of retailers ranging from Wal-Mart, Kohl's and Target to Nordstrom, Saks and Neiman Marcus, a combined Federated and May won't control too much of the market, Stinson said.

"There is a much broader market than there was 10 years ago," Stinson said. "These guys (Federated and May) won't control an inordinate amount of the market."

If the merger goes through, it is possible that federal regulators might require Federated and May to sell off some stores, however, Stinson said.

Talks between Federated and May have been on and off for some time, but the abrupt resignation on Friday of May's chairman and chief executive, Gene Kahn, could clear the way for a merger. With no succession plan in place, Federated's chairman and CEO Terry Lundgren could head the combined entity.

May named president John Dunham as acting chairman and chief executive while it looks for a successor.

Friday's announcement cited no reason for Kahn's departure, which followed a disappointing holiday season. But May's sales performance has long lagged its competitors, and analysts question Kahn's direction for the company, which has struggled to find its identity in the highly competitive middle market.

Kahn, who had been with May in various capacities since 1990, left the company seven months after helping May acquire Target Corp.'s more than five dozen Marshall Field's department stores and nine Mervyn sites for $3.24 billion — a price many analysts called too high.