Campeau Raises Stakes in Quest for Federated : Says It Would Move Allied Headquarters to Cincinnati

The high-stakes game of poker for Federated Department Stores continued unabated Tuesday as Campeau Corp. called rival R. H. Macy & Co.’s bid “illusory” and upped the ante on its own bid.

Without increasing the dollar value of its bid, Toronto-based Campeau did proffer an olive branch of sorts, proposing to move its Allied Stores retail headquarters from New York to Federated’s home turf of Cincinnati.

Meanwhile, Federated’s board of directors met late into the evening to weigh Campeau’s $68-a-share, or $6-billion, cash bid as well as an offer to merge with Macy’s in return for cash and stock.

Such a merger would combine two retailing powerhouses. Macy’s is one of the nation’s most prominent and best known chains, with 91 department stores nationwide. Federated owns Bullock’s, Bloomingdale’s, I. Magnin and Ralphs Grocery among other operations.

Wall Street on Tuesday set about establishing a dollar value for Macy’s proposed cash and stock deal, which Federated announced late Monday. Estimates ranged from a low of $65 a share to a high of $72. That would put the total price between $5.75 billion and $6.37 billion, compared to Campeau’s $6 billion.

One Wall Street source put the deal’s value at $69 to $72 a share. “We’re thinking the deal competes by a little bit, although it’s not a knockout bid,” the source said. “But inasmuch as it’s a little better (than Campeau’s), Campeau probably has to raise.”

Under the Macy’s bid, which surprised traders Monday morning, Macy’s would pay $73.80 cash per share for 80% of Federated’s shares and exchange the rest for a total of 40% of the common stock in a new company that would be created by the merger--Macy’s/Federated Inc.

The newly combined company would then apply for listing on the New York Stock Exchange, marking Macy’s return to public ownership after a nearly two-year period of being privately held after a leveraged buyout. Observers noted that the value of the new company’s stock is a wild card, the value of which cannot be precisely pinpointed.

“Shareholders always like to get cash, not stock,” one Wall Street source said. “If you want to invest subsequently, you can. This way they’re being forced.

“The people who own Federated now are not long-term (investors),” he added, referring to the institutions and arbitragers that have bought much of Federated’s shares in recent weeks. “If it’s a compelling cash offer, they would take that over any form of security.”

In documents filed Tuesday with the Securities and Exchange Commission, it was disclosed that, if an agreement is signed, Macy’s anticipates that Federated would agree to pay $45 million in so-called breakup fees should the deal collapse for any reason other than Macy’s inability to get financing. Campeau in the past has threatened to sue if Federated agreed to any such deals.

Turned Tables

Douglas J. Tigert, professor of retail marketing at Babson College in Wellesley, Mass., observed that “Campeau put $2 billion on the table, but we haven’t seen a nickel from Macy’s yet. . . . Until you see that, it’s a phony bid.”

He recalled that Federated took Campeau to task early in its takeover effort, calling the Toronto developer’s financing “illusory.”

Campeau turned the tables Tuesday, describing the Macy’s proposal as a “front-end loaded, illusory offer designed to mislead individual shareholders.” In a statement, Robert Campeau, the company’s chairman, said: “We think their deal is simply not competitive. The transaction just depends too heavily on the speculative trading value of the shares of a new, highly leveraged combined Macy’s/Federated.

“If the Federated board prefers a two-tiered offer rather than our all cash $68 offer,” he added, “we are prepared to structure a transaction along those lines.”

Separately, Campeau set about trying to soothe some grass-roots fears. In a conversation with Cincinnati Mayor Charles J. Luken, the president of Campeau’s Allied Stores division, Robert H. Morosky, said Allied would be willing to relocate its headquarters and management to Cincinnati.

“It makes great sense to combine our Allied management team with Federated’s, which is larger and already established in Cincinnati,” Morosky said.

Morosky, an Ohio native, worked for many years for the Limited of Columbus, Ohio, and still owns a home in Ohio. “He’d be very excited (about going back),” a Campeau spokeswoman said. However, it was unclear how Allied’s other 200 headquarters personnel would react if they were transferred from New York.

Observers viewed the overture as an attempt by Campeau’s side to alleviate concerns in Cincinnati that Federated’s headquarters would be closed and hundreds of people laid off. However, one Wall Street source said that Campeau risked losing out in the Federated race if he didn’t increase his offer in a more tangible way.

According to a Wall Street source close to Federated, Macy’s had been exploring the possibility of a transaction with Federated for about three weeks but did not submit a formal proposal until Monday morning, just before Federated’s board meeting.

He added that Macy’s would be inclined to sell off all Federated’s non-department store units, including the 129-store Ralphs chain in Compton. “They have no present plans to broaden that,” he said.

In a letter to his Federated counterpart, Howard Goldfeder, Macy’s Chairman Edward S. Finkelstein said his company would be pleased to discuss the proposed sale of Ralphs and “reach a mutually acceptable agreement.” Both Lucky Stores of Dublin, Calif., and Ralphs management are known to be bidding for the company.

Federated shares turned in another strong showing on Wall Street, rising $1.25 to $67.75, with 1.6 million shares changing hands.