Federated Stores Target of $4.2-Billion Takeover Bid
Federated Department Stores, parent company of Bullock’s department stores and Ralphs supermarkets, Monday became the target of an unsolicited, $4.2-billion takeover offer by Canadian real estate developer Campeau Corp.
Campeau, which over the last year has sold off many of the assets of a retailer it bought in 1986, made a $47-a-share offer for Federated and indicated that, as owner, it might sell Ralphs and three other Federated divisions.
With its bid, Campeau is targeting one of the nation’s premier retailers. Although Bloomingdale’s is perhaps Federated’s most notable franchise, the Cincinnati-based company also owns Bullock’s, Bullocks Wilshire and I. Magnin in California, as well as such well-known regional chains as Filene’s in Boston, Burdines in Florida, Foley’s in Texas and Rich’s in Atlanta.
Observers indicated that Campeau’s bid appeared to be a low-ball offer for a company that would have a breakup value of as much as $60 to $65 a share. By that argument, a piecemeal sell-off of divisions would garner an estimated $5.5 billion to $6 billion.
In composite trading, Federated shares rose $13.125 to $49, above the offering price, an indication that Wall Street expects the bidding to heat up. New York real estate developer Donald Trump has already expressed interest in buying a sizable stake in Federated.
Toronto-based developer Robert Campeau, one of Canada’s most powerful French-speaking businessmen, launched the offer in an advertisement in the New York Times. He earned a reputation as a shrewd businessman in 1986 when he succeeded in taking over Allied Stores after a bitter, protracted battle during which he bought 48% of the company’s shares on the open market in a single day.
In a two-page letter to Federated Chairman Howard Goldfeder, Campeau said his Toronto-based company is ready to meet promptly with Federated’s board and management.
“Your board should be aware,” the letter continued, “that we are prepared immediately to enter into negotiations with respect to all aspects of our offer, including price.”
Federated responded in a brief statement that it is conferring with advisers and that its board of directors “will consider the offer in due course.” It added that the board will communicate with shareholders no later than Feb. 5, and it advised shareholders not to tender their shares in the meantime.
In recent years, Federated has been seen as a likely takeover candidate because of its undervalued real estate. According to the company’s financial materials, as of Jan. 31, 1987, it owned 146 of its 225 department stores, 45 of its 76 mass-merchandising stores and 32 of its 129 Ralphs supermarkets.
In late November, 1986, Federated thwarted what appeared to be a takeover attempt by a large shareholder, rumored to be Dart Group, by buying back 2.2 million shares for $195 million. In recent months, it has bought back millions of other shares in actions designed to enhance its stock’s value.
Probable Reaction
Thomas H. Tashjian, a vice president with the Los Angeles investment firm of Seidler Amdec Securities, said Federated management would likely try to put together its own leveraged buyout of the company rather than accede to a takeover.
“Management worked to enhance shareholder value,” he said. “They believe that the company is best operated under their . . . direction.”
Added Walter F. Loeb, an analyst with Morgan Stanley & Co. in New York: “I believe that Federated Department Stores is very determined to stay independent. Howard Goldfeder is a very tough manager, and he will take a tough stand.”
Another analyst who asked to remain anonymous said the company would find eager purchasers lined up “around the block” should it put any of its high-quality franchises on the sale block to raise funds for a buyout.
“A new owner might simply squeeze more profit out of it, perhaps by getting rid of less successful operations, reducing (store) space in some cases and maybe reducing exposure” in the Sun Belt, where Federated has suffered from the oil-related recession, the analyst said.
Among the likeliest divisions to be sold, most observers agreed, would be Ralphs, a Compton-based supermarket company with 129 stores in Southern California. Of Federated’s units, that chain is the most distant from Federated’s core department store business.
Sales Considerations
Indeed, in a document filed with the Securities and Exchange Commission, Campeau Corp. indicated Monday that it is considering the possibility of selling four Federated properties should its CRTF Corp. subsidiary succeed in taking over Federated. They include Ralphs and Gold Circle, a 48-store discount operation based in Columbus, Ohio; MainStreet, an apparel chain with 15 stores in Chicago and Detroit, and Children’s Place, which sells children’s apparel through 163 stores in 26 states and accessories through a three-store start-up chain called Accessory Place.
Campeau also said that if the government raised antitrust considerations it would contemplate other divestitures in areas where both it and Federated operate, such as Florida and New England. Through its Allied Stores subsidiary, Campeau operates Jordan Marsh and Maas Bros. in Florida, Jordan Marsh in New England and Stern’s in New York.
Analysts and other retail observers were surprised by Campeau’s interest but noted that developer Trump had earlier sized up Federated as an undervalued company. Trump said Jan. 13 that he was seeking government clearance to buy as much as $15 million of the company’s stock. (Campeau’s public tender offer does not require the kind of governmental approval that Trump sought in his plan to buy stock on the open market.)
Trump did not return calls to his New York office Monday, and an assistant, Norma Foerderer, declined to comment on Campeau’s bid.
Analyst Tashjian said Campeau’s offer might prohibit Trump from launching his own bid. “Trump recognized that it was a clearly undervalued situation in the $30-$40 area,” he said. “Now that we’re up in the $45-$55 area, it’s no longer just an undervalued real estate play. It actually needs some good retail management expertise.”
Previous Takeover
Some observers viewed the move by Campeau as audacious, given its previous experience as an acquirer of a large retail company, Allied Stores. Soon after its $3.6-billion purchase of Allied was completed in late 1986 after a bitter, protracted battle, Campeau set about selling off 15 of the company’s 22 divisions to raise funds. Campeau received $1.2 billion from the sale of such stores as Bonwit Teller but retained several other prestigious, profitable franchises, including Brooks Bros. and Ann Taylor.
Federated was founded in 1929 by three family-owned department store companies--Filene’s in Boston, Abraham & Straus in Brooklyn and Lazarus in Columbus, Ohio. It employs 133,000 people--including an estimated 10,000 at 22 Bullock’s stores, 7 Bullocks Wilshire outlets and 3 Bullock’s Woman stores--and 15,000 at Ralphs.
In 1986, the company had net income of $288 million on sales of $10.5 billion. Of its estimated 90 million common shares, only 8% is controlled by management and employees.
Starting in 1982, Federated spent five years attempting to rein in its far-flung empire after costs had started getting out of hand. It consolidated several divisions but meanwhile was spending heavily to develop new retailing concepts.
Analysts described Federated’s balance sheet as one of the strongest in the industry but said the company has shown unexciting progress in boosting its return on equity, a measure of performance from the stockholders’ viewpoint. In 1986, for example, Federated’s return on equity was 11.3%, compared to 14.1% for May Department Stores, a highly regarded, bottom-line-minded retailer.
Last week, apparently in response to Trump’s action, Federated moved to strengthen its shareholder rights plan, an anti-takeover provision commonly called a “poison pill.” The plan would permit holders to buy Federated stock at a discount if a person acquired 15% or more of the company’s stock.
Attacked in Suit
In a lawsuit filed in U.S. District Court for the Southern District of New York on Monday, Campeau sought to invalidate the provision.
Campeau said its takeover offer is conditioned on the company’s obtaining financing as well as the approval of Federated’s board. First Boston Corp. is advising Campeau on the tender offer.
Nancy Raeside, a spokeswoman for Campeau, described the company’s current ownership of Federated stock as “fairly minimal.” She added that Campeau does not yet have commitments for funds to finance the deal but would consider selling assets of Campeau or Allied in addition to Federated units.
In its SEC filing, Campeau revealed that it has discussed selling an equity stake to Marks & Spencer, a leading British clothing retailer that is interested in expanding into North America, but that no agreement has been reached.
Robert Campeau develops, owns and manages commercial real estate in North America. As part of his company’s purchase of Allied, it acquired half-interests in five U.S. regional centers: North Shore Mall in Peabody, Mass.; Tacoma Mall in Tacoma, Wash.; Northgate Mall in Seattle; Columbia Shopping Center in Kennewick, Wash., and Bergen Mall in Paramus, N.J. It also owns 11 centers in Ontario, 5 in Quebec and 2 in western Canada.
Strong Entrance
The purchase of Allied Stores vaulted Campeau Corp. into the competitive U.S. retailing arena with many well-known chains. Since then, the Allied restructuring has resulted in the loss of several thousand jobs from Allied’s New York headquarters and various chains. Most recently, Jordan Marsh laid off 675 clerical and middle-management employees.
In November, the company named as Allied’s president and chief operating officer Robert H. Morosky, former vice chairman and chief financial officer of the Limited, an aggressive specialty retailer based in Columbus, Ohio.
In recent interviews, Morosky, whom many viewed as the financial wizard behind the Limited’s fast growth, said he plans to add trendier merchandise to Allied’s units, including staid, traditional Brooks Bros.
