When Carter Hawley Hale Stores unveiled its complicated anti-takeover defense on Monday, General Cinema emerged as the "white knight" for a second time--and also the apparent big winner.
The Boston-based company gains instant entry into the specialty retailing business and will end up controlling two of the nation's best-known stores: Bergdorf Goodman and Neiman-Marcus.
Los Angeles-based Carter Hawley disclosed plans to split into two separate retailing entities as part of its apparently successful plan to thwart an unwanted takeover attempt by a partnership formed by the Limited and the Edward J. DeBartolo Corp.
The result, subject to shareholder approval, is that Carter Hawley's fast-growing specialty divisions--Bergdorf Goodman in New York, Neiman-Marcus in Dallas and Contempo Casuals in Los Angeles--will be spun off into a new publicly held company that will be 52%-owned by General Cinema. The company will add a third business to its lucrative theater chain and soft-drink operations. Carter Hawley will continue to operate with a focus on its remaining department store operations, which include the two Broadway divisions in Los Angeles and the Southwest, Thalhimers in Richmond, Va., Emporium Capwell in San Francisco and Weinstock's in Sacramento.
If current Carter Hawley management converts all its stock options, as expected, the executives will own about 21% of the surviving company and Carter Hawley employee stock plans will control about 22%.
As it did when Carter Hawley defeated an earlier takeover bid by the Limited, General Cinema again acted as the retailer's white knight. It steadfastly supported Carter Hawley throughout the latest takeover attempt and rejected both the initial $55-a-share offer from the Limited and DeBartolo and the revised $60-a-share offer.
General Cinema entered the picture in 1984, shortly after the Limited launched its first hostile offer for Carter Hawley. The company invested $300 million in Carter Hawley preferred stock, which gave it a 38% stake in the retailer--enough to defeat the Limited's bid.
Ironically, the restructuring comes as Carter Hawley winds up one of its best years in 1986. The breakup also continues a dismantling of the retail empire that Chairman Philip M. Hawley spent most of his career putting together.
Last month, Carter Hawley reached an agreement to sell its John Wanamaker division in Philadelphia to Washington-based Woodward & Lothrop for about $183 million. The company also sold Holt Renfrew, a Toronto-based specialty store chain, last April for $29.7 million and its Waldenbooks bookstore chain in 1984 for $295 million.
But Hawley said Monday that the split-up has been under study since early this year, and he characterized it as "the next evolutionary step. . . . The collection of store names we pulled together now moves on to two entities. I think we will do an even better job with this structure. None of the names, ownership or employees disappear. It all stays very much the same. The public stays in. The employee ownership stays. . . . I think it is terrific. When we told management group about this, I said it is the most exciting thing in my 35 years in retailing."
Hawley said the new specialty store company, which has not yet been named, will keep current management of the chains.
Hawley said it has not been decided who will head the new specialty company. But company insiders and analysts believe that General Cinema executives will either run the company themselves or hire one or two individuals to manage the retailing business.
David Jackson, an analyst at Morgan, Olmstead Kennedy & Gardner in Los Angeles, said the specialty group needs little corporate oversight. "They run better on their own than department stores. We'll see current heads of the specialty stores remain in place and have a major say so in what goes on."
Heavy Debt Load
General Cinema will have only a negligible interest in the surviving Carter Hawley department store firm. The company, which currently holds seven seats on Carter Hawley's 22-seat board, will give up those seats.
The "new" Carter Hawley, however, will continue to carry a heavy debt load. But Hawley said if the restructuring is approved, Carter Hawley will no longer have to pay $30 million annually in preferred dividends to General Cinema.
In addition, Carter Hawley will sell off some assets, including interests in shopping center properties and undeveloped land to reduce its debt, according to Hawley. That should net the company more than $100 million, he said. There also will be a reduction in corporate overhead as those operations associated with the specialty division split off from Carter Hawley.
Carter Hawley Hale DEPARTMENT STORES Broadway--Southern California Broadway--Southwest Emporium Capwell Thalhimers Weinstock's
1984 1985 1986* SALES (in millions) 2,750 2,890 2,570 OPERATING PROFIT 112 144 146
*Estimate; excludes results of John Wanamaker, which is being sold by year-end.
SPECIALTY STORES Bergdorf Goodman Contempo Casuals Neiman-Marcus
1984 1985 1986* SALES (in millions) 974 1,088 1,100 OPERATING PROFIT 99 111 116