Federated Favors Ralphs Executives, Campeau Charges

Campeau Corp. has charged Federated Department Stores with failing to seek the highest price for Ralphs Grocery unit and instead favoring a sale to Ralphs management at a price lower than competing bids.

Ralphs management has submitted a bid of $955 million, according to a document filed Monday by Campeau with the Securities and Exchange Commission. That offer is among six formal bids that Federated has received for Compton-based Ralphs, ranging from $800 million to $990 million, the document said.

Those included bids for $990 million and $961 million from other supermarket operators, one of which presumably is Lucky Stores of Dublin, Calif. The buyer would also assume Ralphs’ debt and capital lease obligations, which for fiscal 1988 are estimated at $52.7 million.

The sale of Ralphs is part of Federated’s effort to avoid a takeover by Campeau. The Canadian firm made its initial bid Jan. 25, and it too has indicated that it would sell Ralphs.

Emotional Issue

Robert Campeau, chairman of his Toronto development firm, said in a letter to Federated Chairman Howard Goldfeder last Friday that the 129-store Ralphs chain “could easily be sold for $1 billion.”

This is the first documentation supporting feelings in the food industry that Ralphs management has been getting favored treatment from Federated. The issue is highly emotional among Ralphs’ 16,000 workers, who fear that a sale to a competitor such as Lucky could result in widespread layoffs.

In discussions before Feb. 29, the Campeau document said, “we were . . . advised that management had submitted a bid and that, although it was significantly lower than several others, Federated was considering accepting it.”

Campeau’s representatives then advised Federated management that they felt the sale process had not been “properly structured in a manner designed to obtain the highest price. . . . We also trust that you will advise the board of our view that it is inappropriate for Federated to sell or agree to sell any assets at this time.”

Cincinnati-based Federated, which also owns Bullock’s, Bloomingdale’s and I. Magnin, has been fending off Campeau’s advances since Jan. 25, when the Canadian firm launched a $47-a-share offer.

Last Wednesday, Federated agreed to a takeover by R. H. Macy & Co. in which shareholders would receive $74.50 a share for the first 80% of Federated shares and exchange the rest for shares in a new company to be formed by the merger, Macy’s/Federated Inc. That agreement put on hold a sale of Ralphs, observers noted.

Campeau that day amended its original tender offer to provide a similar two-tier structure, with $75 a share to be paid for the first 80% and $44 for each remaining share. The documents filed Monday support the amended offer.

An industry analyst who asked that he not be identified noted that, since the document does not disclose terms of the various bids, it is impossible to determine which might be more valuable for shareholders.

“Common sense says that Federated shareholders are going to be better served by a higher sale price on Ralphs, but the terms of that sale can vary,” the analyst said. “If that $955-million offer is an all-cash offer, for example, and the $990-million offer is for cash and various notes, it’s possible that the perceived value of those notes would reduce the attractiveness. A great deal of information is not mentioned.”

The documents also disclose publicly for the first time projections for Ralphs’ performance through fiscal 1992. Earnings before taxes, interest and depreciation would rise to $186 million in 1992 from $139 million in 1988.

Meanwhile, anxious Ralphs employees heard from management on Monday for the first time since Jan. 26. But it’s unlikely that the letter will allay many fears about the future.

Local labor leaders recently expressed concern that employees would be forgotten in the furious bidding battle. As the letter noted, the duel for Federated developing between Macy and Campeau Corp. leaves Ralphs’ fate up in the air.

“The closely related determination of Ralphs sale is dependent upon who acquires Federated,” Chairman Byron Allumbaugh said in the letter. “Therefore, it may be some time before the possible sale of Ralphs can be determined.”