Carter Hawley Hale Again Targeted in Takeover Bid

Times Staff Writer

Carter Hawley Hale Stores, parent company of the Broadway and Neiman-Marcus, said Tuesday that it has received a $1.77-billion takeover bid from a partnership including the Limited, a specialty retailer that lost a bitter, months-long quest for the Los Angeles-based company in 1984.

The offer sets the stage for another no-holds-barred battle, with a much-changed Carter Hawley likely once again to vigorously defend itself against the Limited.

In the intervening time, the Columbus, Ohio, suitor has more than doubled in size as its chairman, Leslie H. Wexner, has won a reputation as one of the nation's premier merchants.

Carter Hawley issued a terse statement Tuesday afternoon, suggesting that the Limited's new offer--almost $700 million more than the last one--shows the company was justified in its earlier opposition. "This offer certainly proves that we were right in rejecting the Limited's offer in 1984. The board will consider it in the appropriate fashion."

Having been rebuffed in its earlier effort, the Limited this time has enlisted as its partner Edward J. DeBartolo Sr. of Youngstown, Ohio, the nation's largest shopping mall developer. Analysts indicated that the combination could prove lethal to Carter Hawley's independence.

The two, in a venture called Retail Partners, have offered $55 a share in cash for each of Carter Hawley's 32.1 million shares, on condition that they acquire at least two-thirds of the voting power of all stock by Dec. 31.

The Limited and DeBartolo have asked for a response by noon Sunday and said they are prepared to begin a tender offer for Carter Hawley's shares on Monday. Carter Hawley spokesman Bill Dombrowski would not comment specifically on the Sunday deadline, noting only that the board's next regularly scheduled meeting is Dec. 3.

Key to the deal is the response of Carter Hawley's biggest stockholder, General Cinema, which rescued the company in the Limited's aborted 1984 battle. Observers speculated that General Cinema might be inclined to sell its stake--equivalent to 38.6%--especially if the deal were sweetened. But that company declined Tuesday to indicate how it will respond.

Clearly, the Limited's offer hits Carter Hawley at a time when the retailer would rather be focusing on the crucial Christmas selling season. A defense effort would cost the company dearly in terms of managers' time and financial resources.

Mixed Signals

Wall Street analysts have suggested for months that the Limited would attempt another takeover, but Wexner has stated publicly in recent weeks that he was not planning to buy other big retailers. Last March, he said he planned to drop his quest for a department store company in favor of pursuing acquisitions of specialty stores.

In October, speculation heated up again after the company doubled its bank credit line to $1.4 billion. One industry source said: "This is an all-cash offer. There are no contingencies. And it's not to be financed with (high-risk, high-yield) junk bonds. It's a retail operator trying to buy retail stores."

Despite the consensus that the takeover fervor would cool in the wake of insider-trading investigations, the retailing sector continues to be ablaze with activity. This is partly because of attempts to complete takeovers before year-end, when tax reform becomes effective.

Recently, in fact, DeBartolo was outmaneuvered by Campeau Corp., a Canadian real estate developer that ultimately won Allied Stores and its well-known Ann Taylor and Brooks Bros. franchises.

May Department Stores, parent of May Co. California, in October completed its purchase of Associated Dry Goods, which owns J. W. Robinson.

Targets of Interest

Analysts speculated that Wexner is primarily interested in Carter Hawley's three profitable specialty units--Neiman-Marcus, Contempo Casuals and Bergdorf Goodman. On the other hand, the main interest of DeBartolo, whose holdings include the Mission Viejo Mall, would be Carter Hawley's department stores and real estate.

"I think the deal will get done," said Robert F. Buchanan, who follows Carter Hawley for the New York investment house of Dillon, Read & Co. "But Les Wexner knows full well that he can't buy control at $55 and knows he'll have to offer at least $60 a share. I would imagine being as smart as he is that he's fully prepared to raise the ante."

The offer, made in a letter apparently delivered to Chairman Philip M. Hawley on Monday, comes at a time when Carter Hawley is making significant strides toward improving profitability after several lackluster years.

The Limited's $1.1-billion bid in April, 1984, was a catalyst for some of the biggest changes--including the $295-million sale of the Waldenbooks division to K mart. Since then, Carter Hawley also has sold its Holt Renfrew subsidiary in Canada and has announced the sale of its 11-store Wanamaker division in Philadelphia.

"Carter Hawley has over the past few years simply made itself more attractive as a takeover candidate," said Sarah A. Stack, with the Los Angeles brokerage of Bateman Eichler, Hill Richards. "By divesting operations that weren't central to their main line of business, they've made themselves a cleaner, leaner candidate."

It is the department stores that have the most room for improvement, analysts noted. They accounted last year for 73% of sales but only 56% of profits, while the much smaller specialty store units drew in 27% of revenues but 44% of profits. Although Carter Hawley is not known as a big real estate holder, it does own nearly 25% of its retail space and has interests in three shopping centers in which its department stores are located.

In addition to the Broadway Southern California, Carter Hawley's department store operations include the Broadway-Southwest, Emporium Capwell, Thalhimers, Weinstock's and John Wanamaker, a Philadelphia division that Woodward & Lothrop of Washington, D.C., recently agreed to buy in a deal worth more than $200 million.

Revenue and Income

The company, which has 316 stores, had 1985 sales of just under $4 billion and net income of $48 million. By contrast, the Limited, which operates primarily much smaller specialty apparel stores, had 1985 revenues of $2.39 billion but net income of $145 million.

The Limited, which has astounded the investment community with its fast, successful growth, operates 1,823 outlets under such names as the Limited, Limited Express, Victoria's Secret and Lane Bryant. It also has announced plans to open several stores under the name of Henri Bendel, a high-fashion house it bought last year in Manhattan.

Wexner and DeBartolo have known each other for several years, and a substantial number of the Limited's stores are in malls owned by the developer.

Industry observers noted that Carter Hawley's fate clearly will hinge once again on General Cinema, the motion picture exhibitor that rescued the company in April, 1984, by agreeing to purchase a large stake.

Analysts speculated that the Limited might already have won the support of General Cinema. "I would hope that before the Limited and DeBartolo started this venture that they felt they had better than a 50-50 chance of winning," said Robert A. Corea of the Ohio Co., an investment firm in the Limited's home base of Columbus.

Huge Profit Possible

General Cinema owns preferred stock convertible into 12.2 million shares, or 38.6% of Carter Hawley Hale common stock outstanding. If it tenders its stake at $55 per share, it stands to make a pretax profit of about $30 per share, or $371 million.

According to a "standstill" agreement, General Cinema agreed not to add to its stake until 1991. The agreement also limits General Cinema's ability to sell its stake to one buyer or group through 1991. However, the agreement allows General Cinema to sell its stake to a single buyer or group under a tender offer.

Whether General Cinema remains friendly to Carter Hawley--or whether it can be persuaded to sell for a big profit--is uncertain. Janine Dusossoit, investor relations officer for General Cinema, said Tuesday that "any comment (on what we plan to do) would be premature and inappropriate at this time."

Other big holders of Carter Hawley's remaining 19.9 million outstanding common shares include employee profit-sharing and benefit plans, with 20%, and officers and directors, with 5%.

In trading Tuesday on the New York Stock Exchange, shares of Carter Hawley Hale soared $7.25 to $50.50 on volume of 1.34 million shares. The Limited shares rose 87 1/2 cents to $32.50, while General Cinema's stock climbed $2.25 a share to $47.12 1/2.

Times staff writers Bill Sing, Nancy Rivera Brooks, Denise Gellene and Nancy Yoshihara contributed to this story.

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