Federated Rejects Offer; Takeover Could Trigger Big Sums for Officers

Federated Department Stores, owner of Bullock’s and Ralphs Grocery, on Friday formally spurned a takeover offer by Campeau Corp. while also disclosing that executives could receive a staggering $231.5 million if there is a change in control of the retailer.

While rejecting Campeau’s $47-a-share takeover offer, Federated also dismissed as “illusory” the prospect that Campeau could finance a sweetened proposal at $61 a share, or $5.5 billion.

Noting that its financial advisers had agreed that the $47-a-share bid was “grossly inadequate,” Federated recommended that stockholders not sell any shares to the Campeau subsidiary that launched the tender offer on Jan. 25. Campeau is a Toronto development firm.

Disappointing some Wall Street observers, Cincinnati-based Federated did not disclose a plan of restructuring that would appease shareholders by raising the value of the company’s stock.

With its rejection of Campeau’s bid, Federated in effect bought time to more thoroughly consider its options. A Federated filing with the Securities and Exchange Commission released Friday lays out a menu of alternatives that it might consider. They include a merger with a friendly partner, the sale of assets, joint ventures, placement of a block of stock in friendly hands, repurchase of its own shares or a restructuring.

Tells of Prospective Buyers

Another frequently mentioned possibility is a buyout of Federated’s public shareholders in partnership with Kohlberg Kravis Roberts & Co., a New York investment firm. Federated also is expected to consider the sale of its 129-store Ralphs supermarket chain, based in Compton.

Federated’s filing acknowledged that the company has been approached by unidentified parties interested in buying some or all of its assets. The company also owns Bloomingdale’s, I. Magnin and regional chains such as Filene’s in Boston.

Perhaps the most remarkable aspect of Federated’s filing was its disclosure that executives at its divisions, subsidiaries and central office could receive $231.5 million if a Campeau takeover is deemed to constitute a change in control.

The payments--a brand of the “golden parachutes” that many companies have established to protect company officials in case of a hostile takeover--arise from a deferred compensation plan that the company set up in 1969 and 1975 and has since amended. Under the plan, executives are able to defer up to 35% of their salaries in the form of credits for company stock or some combination of stock and cash. If control of Federated changes hands, the stock credits immediately become payable in cash.

Federated’s filing with the SEC discloses that Chairman Howard Goldfeder would receive $3.5 million if control changes; Bloomingdale’s Chairman Marvin S. Traub would receive $2.5 million; Federated President Norman S. Matthews, $592,631; Federated Vice Chairman John W. Burden III, $422,329, and Federated Vice Chairman Will M. Storey, $420,790. Scores of other executives would receive payments as well, but their sums are not disclosed.

As Wall Street waited for Federated to decide whether to pursue an alternative to a takeover, it absorbed the rejection of Campeau’s offer by Federated’s board, which met Thursday in New York.

In composite New York Stock Exchange trading, Federated shares rose 37 1/2 cents each to $56.625, with more than 3.3 million shares changing hands.

In strong language, Federated decried Campeau’s offer as “an opportunistic attempt to capitalize on the severely depressed level of stock prices (since the October market crash) to acquire the company’s shares at a price . . . significantly short of the underlying value of the company.”

Federated’s extensive real estate holdings and well-known franchises make it an attractive target, according to retail analysts, who put the company’s breakup value at $60 to $65 a share.

In his first public response to the Canadian firm’s chairman, Robert Campeau, Federated Chairman Goldfeder said in a letter that the board had considered the higher, $61-a-share offer by Campeau, made Wednesday in an effort to force Federated into making a decision by this afternoon. However, Goldfeder noted that Campeau had not yet obtained financing or “provided our management with any evidence that your proposal is other than illusory.”

Goldfeder also said the board would not be “coerced” by Campeau’s deadline and would consider the $61-a-share proposal “along with other alternatives” if Campeau provided proof of financing.

A Campeau spokeswoman said the company is confident that it can get such financing and is prepared to meet with Federated’s board to discuss it.

However, Federated noted in a statement that a Campeau financial adviser has indicated in legal proceedings that Federated’s shareholder rights plan and the recently enacted Delaware takeover statute are an “immediate and substantial impediment” to Campeau’s ability to secure financing.