$6-Billion Sale of Federated to Campeau Now Appears Certain
Federated Department Stores appeared all but sold Friday after the retailer confirmed that it is negotiating a deal to be taken over by Campeau Corp. for $6 billion in cash.
The announcement put on hold--at least for a few days--a sale of Ralphs Grocery, the 129-store supermarket chain based in Compton. Lucky Stores and Ralphs management reportedly have been engaged in a billion-dollar bidding war for the grocery company.
Cincinnati-based Federated, which also owns Bullock’s, Bloomingdale’s and I. Magnin, has been tenaciously pursued by Campeau since Jan. 25.
Federated and Campeau said they are “proceeding to negotiate the other terms of a definitive agreement” for a $68-a-share deal to submit to the board Monday. But they added that “no assurance can be given that a definitive agreement will be reached.” Federated’s board meeting is scheduled to begin at 11 a.m. in New York.
The higher bid topped a $66-a-share hostile tender offer made Thursday morning by the Canadian real estate developer. The higher offer was proposed Thursday evening by Campeau’s investment advisers after Federated’s board invited them in to negotiate. That move proved to be a dramatic breakthrough in Campeau’s bid for Federated, which had $11 billion in sales last year.
“We were convinced that’s what it took and that the economic value was there,” said a source who attended the meeting. “We felt it was a full value for the company.”
Brooks Bros. Deal Helped
The meeting was “fairly low-key and businesslike,” the source continued, adding that the mood among Federated’s board members appeared to be one of surrender that indicated they had been unable to come up with a better deal for shareholders.
Robert Campeau, chairman of the Toronto firm, did not attend the meeting with Federated’s board because he stayed on in London after negotiating a deal to sell Brooks Bros., a well-known U.S. clothier, to British retailer Marks & Spencer. That deal, observers said, helped lead to the breakthrough.
“The whole thing with Brooks Bros. and Marks & Spencer definitely made the Campeau people much more legitimate,” one Wall Street source said. Campeau stepped up pressure on Federated’s board with an announcement Thursday that it could raise an additional $770 million by selling the chain to Marks & Spencer.
The additional source of funds bolstered Campeau’s financing, which the Federated board had repeatedly cited as a source of concern that made it unwilling to take Campeau’s offer seriously.
According to the source who attended Thursday evening’s meeting at the New York law firm of Skadden, Arps, Slate, Meagher & Flom, Campeau’s increased offer was proposed by Bruce Wasserstein. Wasserstein, the former architect of First Boston Corp.’s investment banking strategy, resigned the firm Feb. 2 to start his own investment house, Wasserstein, Perella & Co.
His firm and First Boston continued to work side by side throughout the takeover effort to devise Campeau’s strategy and come up with financing, sources said.
Once he and other Campeau advisers and attorneys were invited into the board meeting, Wasserstein immediately proposed sweetening Campeau’s bid to $68 a share, or $6 billion. That was the fourth boost in the price, which had started at $47 a share on Jan. 25.
Walter F. Loeb, an analyst with Morgan Stanley & Co., a New York investment house, said the parties now certainly appear close to an agreement. But he said he would not “rule out that other interested parties might make a counter offer.”
Ralphs Sale Put Off
However, other Wall Street observers said that prospect appeared increasingly unlikely.
Sources familiar with the Ralphs bidding said action on that sale has been put off while Campeau and Federated negotiate the bigger picture.
“It’s still very much for sale,” one source said. “The question is, would they have to get Campeau’s approval? There’s a lot of politicking going on.”
Another source said the delay appeared to take some pressure off Ralphs management, which is reportedly still attempting to nail down financing for a billion-dollar deal to compete with Lucky, based in Dublin, Calif.
Should Campeau succeed, some retail industry observers forecast a sale of assets similar to the “bust-up” that ensued at Allied Stores after Campeau’s $3.5-billion purchase of that company in late 1986. It sold off more than half the retailer’s units, retaining only the most profitable operations, including Ann Taylor and Brooks Bros.
“Campeau’s approach is clearly that he is able to fund some of these acquisitions by turning around and divesting parts of the business,” said Al D. McCready, national director of retail and wholesale trade for the Deloitte Haskins & Sells accounting firm in New York. “I think it’s reasonable to say he’d do the same here.”
The most likely candidates for sale, observers said, continue to be the non-department store assets that both Campeau and Federated had targeted for sale. In addition to Ralphs, those include Gold Circle, a discount chain, and specialty stores including the Children’s Place, Filene’s Basement and MainStreet.
Antitrust Concerns
However, analyst William N. Smith of the Smith Barney, Harris Upham investment firm in New York said Campeau might also sell off Foley’s, based in Houston; Lazarus, in Cincinnati; Abraham & Straus, based in New York, and Goldsmith’s, Memphis. He cited Dillard Department Stores of Little Rock, Ark., for days rumored to be part of a consortium attempting to launch a bid for Federated, as a potential buyer of Goldsmith’s. I. Magnin was also named by one source as a possible candidate to be sold.
Another Wall Street source suggested that Filene’s, a Boston fixture, might be sold to avoid potential antitrust concerns. Campeau’s Allied division operates Jordan Marsh in the Northeast.
However, the source noted that a massive selloff of assets was not necessarily certain because of the absence of preferential tax treatment that was in effect when most of the Allied assets were sold.
Wall Street sources were divided on what would become of Federated’s top management, particularly the beleaguered chairman and chief executive, Howard Goldfeder.
Goldfeder was harshly criticized during the takeover struggle as having left his company vulnerable because of lackluster earnings gains in recent years. According to one former Federated store employee, Goldfeder also instilled fear in workers with occasional outbursts in front of customers and co-workers.
On Thursday, rumors had circulated that Goldfeder had resigned after the board rejected his proposal for a corporate revamping. However, a Federated spokesman said Friday that Goldfeder was still in his post.
‘Bruises to His Ego’
One source said Campeau and the board might agree that Goldfeder, if he were willing to stay, would be needed for stability during a transition to new ownership. “If I were Campeau, I would tame this lion to keep him there and send him home quietly when I was done with him,” he said.
On the other hand, analyst Smith said, Goldfeder would be due millions of dollars in so-called golden parachute and deferred compensation payments. “I assume that Goldfeder waltzes into the sunset on his golden parachute and lands with bruises only to his ego,” Smith said, adding that he would expect the same of President Norman S. Matthews.
Smith foresees a different story for Allen I. Questrom, former chairman of Bullock’s/Bullocks Wilshire and now a vice chairman of Federated. “If Mr. Campeau were to ask my advice, I would recommend that he make every effort to find a position for Mr. Questrom and that he make it attractive and significant.”
Questrom, 47, rose quickly at Federated and was widely regarded as having a shot at the chairmanship. Smith speculated that Campeau might put him in charge of some of Federated’s department store divisions. Robert H. Morosky, formerly of Limited Inc., was recently named president of Campeau’s Allied Stores division, which consists of specialty stores.
In composite New York Stock Exchange trading, Federated stock jumped $1.375 to $64.50, with nearly 2.6 million shares trading hands.
