Associated Seeks More Time to Consider Offer From May
Suddenly finding itself a hot property, Associated Dry Goods on Monday told its suitor, May Department Stores, that it needed more time to consider a $2.7-billion merger proposal made over the weekend.
One analyst characterized it as a “relatively mild” response to May’s sweeping proposal that would, among other things, bring together two of Southern California’s biggest retailers--May Co. California and J. W. Robinson--and become one of the nation’s largest department store chains.
“The range could have been everything from ‘Go jump in a lake’ to ‘Yes, we’ll take it,’ ” said Stuart Robbins of Donaldson, Lufkin & Jenrette Securities. “The response dealt only with the time frame and wasn’t a harsh, combative response. . . . They’d be hard-pressed to make a combative response at the $66-a-share price.”
Most observers viewed the merger proposal, which was announced Sunday, as favorable for both retailers. The purchase prices, at 22.8-times Associated’s most recent 12-month earnings, would be “a terrific deal” for that company’s stockholders, they said.
For its part, May, operator of such middle-of-the-road department stores as May Co. California and Hecht, would gain upscale pizazz from Associated’s Lord & Taylor and J. W. Robinson divisions. May is based in St. Louis; Associated has its headquarters on Fifth Avenue in New York.
The combination would put May and Federated Department Stores neck-and-neck for the No. 1 spot for overall department store sales and would mean further consolidation in an industry struggling to find ways of increasing revenue now that most areas have become saturated with stores.
It would also be another significant development for New York-based re tailing, which in the past few days has been shaken by the demise of two well-known department store chains--Gimbels and Ohrbach’s.
Associated issued its response after a regularly scheduled board meeting where the stock-swap offer was considered. Joseph H. Johnson, chairman and chief executive of Associated, sent a letter to David C. Farrell, his counterpart at May, saying that “the June 24 time limit specified in your unsolicited proposal is unreasonable.”
He added: “Your proposal and the legal and other questions raised by it will be considered in due course by our board, and I will advise you of our board’s conclusions when they are reached.”
Investors Take to Associated
Associated would not elaborate; May declined to comment.
Investors were more effusive. Stock in Associated, the New York Stock Exchange’s fourth most active issue, soared $18.87 1/2 a share to close at $64.87 1/2. By contrast, May shares fell $4.75 to $83. That decline reflected the fact that May’s issuance of new stock to complete the deal would dilute its earnings per share, analysts said.
For Associated, which was formed in 1916 from the merger of Associated Merchants Co. and United Dry Goods, the possibility of now being absorbed in a merger is an ironic prospect. The offer also comes at an interesting time for Johnson, the 64-year-old chairman who is just a year and a half shy of Associated’s retirement age.
“He’s in the process of determining succession, and that’s why it’s probably an inopportune moment for him to be bid for,” analyst Robbins said. On the other hand, “the market’s telling him it’s a good time. Basically, any time you get a bid of this size, you have to at least consider it.”
Monroe Greenstein, an analyst at Bear, Stearns & Co., noted that institutional investors hold about 75% of Associated’s shares. “They would vote for a takeover unless someone comes along with a better offer or a cash offer,” he said. “May could sweeten this offer.”
The lofty bid is perhaps less a testament to Johnson than to his predecessor, William B. Arnold, who died of cancer two years ago at 59. Arnold, who served as chairman and chief executive from 1979 until shortly before his death, was credited with getting the company back on track after a decade of mediocre performances by a group of department store chains founded in the 19th Century--including Indianapolis’ L. A. Ayres, Pittsburgh’s Joseph Horne Co. and Rochester, N.Y.’s Sibley, Lindsay & Curr.
(In the 1970s, the prestigious Lord & Taylor property far outperformed the parent, and it continues to dazzle today. Analyst William N. Smith of Smith Barney, Harris Upham in New York describes the mystique of Associated’s single most profitable entity this way: “One might further define the Lord & Taylor style as being compatible with BMWs and weekends in Connecticut and preferred by inhabitants of William Hamilton cartoons.”)
Under Arnold, stodgy Associated became a Wall Street darling, aggressively entering the upscale discount market by acquiring the Caldor chain in Norwalk, Conn., and Loehmann’s, an off-price women’s wear retailer.
Meanwhile, Johnson, then chief financial officer, was closing unprofitable divisions and consolidating weak ones. (Interestingly, he had spent the early part of his career with May Department Stores, working at M. O’Neill & Co. in Akron, Ohio, before leaving for the Lord & Taylor division in 1970.)
Strength in Financing
When Arnold’s health deteriorated, Johnson’s behind-the-scenes streamlining efforts were rewarded with the chairman’s post, an unusual spot in retailing for a man whose strength lay in financing instead of merchandising. Balancing Johnson is a highly regarded merchant, David P. Williams III, as Associated’s president.
“They made substantial progress” during the early 1980s, said Joseph C. Ronning, an analyst at Brown Bros., Harriman & Co. “Over the past couple of years, earnings have been on a plateau for one reason or another, but it’s a much better company today than eight or 10 years ago.”
For the most part, analysts played down the retailer’s 41% earnings decline in the first quarter ended May 3, noting that the period accounts for a small portion of full-year results.
The soft-spoken, Alabama-born Johnson often comes across as low key, but “he’s also capable of being quite decisive,” analyst Smith said. He cited Johnson’s recent decision to remove Michael A. Gould as chairman of Robinson’s in Southern California when the division’s costs got out of hand.
And now, with Monday’s letter to Farrell, he’s buying a little time for his biggest decision yet. ASSOCIATED DRY GOODS AT A GLANCE New York-based company operates 158 department stores including J.W. Robinson Co., Lord & Taylor, Denver Dry Goods chains and two discount chains: Loehmann’s and Caldor.
Assets: $2.3 billion
Employees: 60,000
Shares outstanding: 34.8 million
12-month price range (NYSE): $29.75 -- $64.87 1/2
Monday close: $64.87 1/2, up $18.87 1/2 MAY DEPARTMENT STORES AT A GLANCE Operates 144 department stores including May Co., California; Hecht Co., Famous-Barr, and Kaufmann’s. St. Louis-based May also owns 62 Venture discount stores, and 1,977 self-service shoe stores, primarily the Payless ShoeSource chain.
Assets: $3.4 billion
Employees: 72,500
Shares outstanding: 43.0 million
12-month price range (NYSE): $49.37 1/2 -- $88.25
Monday close: $83.00, down $4.75
