Carter Hawley Rejects Takeover, Plans a Split : Turns Down $1.93-Billion Offer, Announces Proposal to Restructure Into Two Companies
Carter Hawley Hale Stores, owner of the Broadway and Neiman-Marcus, successfully fought off a takeover Monday by announcing plans for a dramatic restructuring that would split the Los Angeles-based retailer into two companies.
The restructuring calls for a department store company, to be run by the company’s current management, and a specialty store company to be controlled by General Cinema--Carter Hawley’s largest stockholder.
With its plan, Carter Hawley ensures continued ownership of some of the most prominent names in retailing and retains its base in Southern California, where the company has deep and longstanding political, cultural and social ties.
Offer Turned Down
The end of the takeover fight came Monday morning as the company first rejected a sweetened, $1.93-billion takeover bid by the Limited and Edward J. DeBartolo Corp. and then put forward its proposed restructuring.
After the announcement, the Ohio-based partnership quickly withdrew its offer, expressing regret that Carter Hawley’s board had rejected the revised price of $60 a share. That proposal, which represented a $5-a-share premium over the original offer, was made on Sunday as part of a last-ditch effort.
The withdrawal of the bid marks the second time in 2 1/2 years that Carter Hawley has successfully fended off a takeover effort by the Limited. This time around, Carter Hawley was able to thwart its rival much more quickly, but the measures taken were no less dramatic.
Under the restructuring plan, still subject to shareholders’ approval, Carter Hawley would spin off its specialty store units--Neiman-Marcus, Contempo Casuals and Bergdorf Goodman--into a new, publicly traded company and would retain its department store businesses, including the Broadway-Southern California, the Broadway-Southwest, Thalhimers, Weinstock’s and Emporium Capwell.
Responding to questions for the first time since the takeover effort was announced publicly on Nov. 25, Carter Hawley Chairman Philip M. Hawley said that “there’s no question in our mind . . . that (the restructuring) adds value” for shareholders.
The restructuring marks a major shift back to its core department store business for the 90-year-old company, which in the last two decades had acquired such prestigious units as Neiman-Marcus and built itself into one of the nation’s major retailers--with stores stretching from coast to coast. The company, which has 316 stores, had 1985 sales of just under $4 billion and net income of $48 million.
The split would be the most sweeping aspect of an evolution that began in 1984 as the company took drastic steps to fend off the Limited. Those actions included the sale of Waldenbooks, a book chain, to K mart and the sale of a large stake to General Cinema, the nation’s largest independent beverage bottler and operator of more than 1,100 movie theaters nationwide. Since then, Carter Hawley has also divested a Canadian operation and has announced plans to sell the 16-store John Wanamaker division in Philadelphia by year’s end.
Sales, Profits Comparison
Last year, Carter Hawley’s department stores accounted for 73% of sales but only 56% of profits, whereas the much smaller specialty store units drew in 27% of revenues but 44% of profits.
In withdrawing its bid, Retail Partners said: “We believe that our $60 all-cash offer for all shares of Carter Hawley Hale, submitted at the invitation of the Carter Hawley Hale board, was more than generous. We regret that it was rejected by both Carter Hawley Hale and General Cinema.”
Of Limited Chairman Leslie H. Wexner, who emerged as a bitter foe in 1984 and a more subdued opponent this time, Hawley said: “I think he was very statesmanlike and graceful in the way he handled this whole process--from the opening phone call to me, and over the last two weeks and right up to the withdrawal today. I give him high marks for professionalism.”
Carter Hawley said that, in rejecting the bid, it took the advice of investment advisers that the $60-a-share offer was “inadequate and not in the best interests of its stockholders.” That view was supported by General Cinema, based in Chestnut Hill, Mass., which had little to say beyond announcing certain technical details of the deal.
Under the plan, most Carter Hawley stockholders would receive $17 in cash and one share of common stock in the specialty store company for each existing Carter Hawley common share, which they also would retain.
In addition, General Cinema would exchange its stake in Carter Hawley for part ownership of the specialty store company.
It was difficult Monday for retail industry observers to put a value on the complex deal. In trading on the New York Stock Exchange, Carter Hawley shares went up and down in price Monday as the developments unfolded. The stock price jumped on news that Retail Partners had increased its bid and then fell nearly $10 a share after word of the restructuring, closing down $5.875 per share at $47.50. General Cinema shares also declined, by $1.875 to $45. However, shares in the Limited rose 62 1/2 cents to $34.
Some details of the planned restructuring emerged from documents filed by Carter Hawley with the Securities and Exchange Commission on Monday. Although it may take months or years for the deal’s value to become fully evident, these facts at least could be gleaned from the company’s materials and the conversation with Hawley.
Multiple Motives
For starters, Hawley said, the restructuring plan was not devised solely to defend the company against the takeover attempt.
“The restructuring plan was something we began to think about in the early part of this year,” he said, adding that the company’s officials “were trying to challenge ourselves to see whether there were alternate structures that would present higher values for shareholders and (enable the company) to grow more rapidly.”
After extensive discussions with Morgan Stanley, the company’s investment banker, Carter Hawley presented the plan to General Cinema in mid-November, before the company knew of the existence of Retail Partners--the joint venture set up by the Limited and DeBartolo for the takeover effort, according to Hawley.
At a meeting over the weekend, Morgan Stanley suggested that Retail Partners make its final offer by Sunday, when the Carter Hawley board expected to make a decision about the restructuring. In a letter delivered to the board at the downtown headquarters, the partnership raised the ante, but to no avail.
For Carter Hawley, the cooperation of General Cinema, which holds a stake representing 38.6% of the voting power, was crucial. General Cinema previously had told Retail Partners that it would reject the initial $55-a-share proposal. However, documents filed by the partnership with the SEC indicated that General Cinema Chairman Richard A. Smith had said he might be persuaded to sell at $60.
Under the proposed restructuring, General Cinema and Carter Hawley executives would not receive cash in the spinoff. General Cinema would receive only common and preferred stock in the specialty store company, and Carter Hawley’s executives would receive only shares of Carter Hawley common stock.
Must Be Approved
The restructuring plan is subject to approval by holders of a majority of Carter Hawley’s shares--other than those held by General Cinema and other investors who own 10% or more of the company--and is expected to be completed next spring, the company said.
As part of the deal, General Cinema agreed to extend a so-called standstill agreement that would prevent it from selling its shares. Under that agreement, the company has the option of buying additional shares in Carter Hawley on the open market to bring its total stake to 50.1%. According to sources, the company apparently bought shares Monday that brought its stake to near the 50% level.
In the interview, Hawley explained that such an arrangement was made to ensure that no other parties would be able to buy a major stake in the company before shareholders had a chance to vote on the restructuring, probably in the next 90 to 120 days.
If shareholders reject the deal, which is not expected, General Cinema would then be required to sell the additional shares to revert to its 38.6% stake.
Hawley added that the withdrawal of the Retail Partners offer essentially ends a lawsuit filed by Carter Hawley last week in federal court.
After having rescued Carter Hawley in 1984, General Cinema under the restructuring would break most of its investment ties with the original company, exchanging the vast majority of its ownership stake for shares in the new company and giving up its seven seats on the 22-member board. However, General Cinema would have a sizable stake in the specialty store company, with 44% of the voting power.
No Voice on Board
“They have the potential to be a small shareholder of the department store company but will not have any board say or board involvement,” Hawley said.
It is expected that current managers of the specialty stores would join the new company, which most likely would eventually have a modest New York headquarters office. It is also anticipated that some Carter Hawley board members would become directors of the new company. The plan also is for the company’s 56,000 employees to stay with their current employers.
William N. Smith, an analyst with the Smith Barney, Harris Upham investment house in New York, said he doubts that Hawley would forgo all involvement with the specialty stores. “I don’t imagine that Mr. Hawley would walk away from that because it’s the most attractive part of the company,” he said.
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