Associated Rejects May’s Takeover Offers, Approves ‘Poison Pill’ Plan
Associated Dry Goods struck back Tuesday, announcing that its board rejected two takeover offers by May Department Stores and approved a “shareholder rights” plan that could force May to give Associated shareholders billions of dollars worth of stock if it acquires the New York retailer.
Associated’s response sets the stage for the first all-out takeover battle in the retail industry since The Limited Inc. went after Carter Hawley Hale of Los Angeles in 1984.
A merger between May Department Stores, owner of May Co. California, and Associated Dry Goods, parent of Robinson’s and Lord & Taylor, would create a new retailing giant that would vie with Federated Department Stores to be the largest department store company in the nation.
Associated called the offers “inadequate and not in the best interests of shareholders.” The company said it told its investment bankers to develop “alternative courses of action” to maximize shareholder values, including possibly selling unidentified portions of the company and buying back stock.
Associated formed a committee of eight outside directors to recommend other courses of action and to consider any new offers from May.
May Department Stores said in a statement that it is “disappointed” with the rejection.
“May believes that it made a full and fair proposal,” the company stated, adding that its proposals remain in place.
May had proposed a friendly combination of the two companies through a $66-per-share stock swap valued at $2.7 billion but followed a few days later with a hostile $60-per-share tender offer for 51% of Associated’s stock. The second offer, which would finish with a $60-per-share stock exchange to complete the merger, was valued at $2.4 billion.
Joseph H. Johnson, chairman and chief executive of Associated, said the board has a “high regard for May as a company,” but it unanimously concluded “that in the exercise of its fiduciary responsibilities, it could not allow coercive tactics to cause Associated to be sold at a price, or merged at an exchange ratio, which did not in its judgment represent full value to Associated’s shareholders.”
The “shareholder rights” plan announced Tuesday is basically a “poison pill” that allows shareholders of record on July 21 to buy preferred stock at half price under a variety of takeover circumstances. Such a provision would make it more expensive to take over the company and would take effect if May’s tender offer, scheduled to expire July 24, has not been called off.
Under the plan, shareholders would be issued for each share of common stock the right to buy 0.01 share of a new series of Associated preferred stock at $150 per unit.
Shareholders can exercise these rights only if someone acquires 20% or more of Associated’s common stock or launches a tender offer for 30% or more of the company’s stock. A shareholder, in exchange for each $150 right, then could demand $300 worth of stock in either Associated or the acquiring firm, depending on which is the surviving entity. Under some circumstances, the shareholder would receive cash, property or other securities worth $300 for each right.
Analysts speculated that Associated might sell its J. W. Robinson division in Southern California or its Caldor or Loehmann’s discount operations.
“It’s not so much what they would be best rid of, it’s what parts would be salable,” said Edward Johnson, director of Johnson Redbook Service, a division of Prescott, Ball & Turbin. Under those circumstances, even Associated’s prize Lord & Taylor division would not be immune, he said.
Robinson’s is high on the list of possible sale items, said Monroe Greenstein, an analyst with Bear, Stearns & Co.
“There are a lot of people who are dying to get a major presence in Los Angeles,” Greenstein said, noting that Robinson’s has had profit problems in recent years.
Greenstein said Associated is “shooting itself in the foot” in its attempt to ward off May Department Stores.
“They would be shrinking the company,” and the plan to issue preferred stock “is the equivalent of taking on a huge amount of debt,” he said.
He speculated that May could make a higher offer, perhaps as much as $70 per share.
“The party’s not over yet,” said Sarah A. Stack, an analyst with Bateman Eichler, Hill Richards in Los Angeles. “Now it’s a battle between the investment bankers.”
