Macy Sues to Block Federated Rival as Its Bid Takes Effect

R. H. Macy & Co. on Tuesday began its two-part offer to buy Federated Department Stores and went to court in New York to block rival Campeau Corp.’s bid.

A rush of Federated stockholders interested in selling their shares to Macy’s was not expected, however. Many investors are anticipating that the duel between Macy’s and Campeau Corp. could still produce a higher price for Federated.

With Macy’s offer now in effect, shareholders may shop between two competing bids for Cincinnati-based Federated, owner of Bullock’s, Bloomingdale’s, I. Magnin and Ralphs Grocery. To win, one of the companies must buy enough shares to control the company.

Cash May Be Preferred

Campeau’s offer would pay $75 a share in cash for the first 80% of Federated’s shares and $44 a share for the rest. The total value of the offer, set to expire March 15, is estimated by Campeau at $68 a share.

Macy’s offer, which Federated’s board of directors agreed to a week ago, would pay $74.50 a share in cash for the first 80% of Federated shares. Holders of the remaining shares would get stock in a new company to be formed by the merger, Macy’s/Federated Inc. Wall Street analysts and speculators value the tender offer, which is scheduled to expire April 4, at $69 to $71 a share.

Wall Street analysts and speculators got their first look at some projections of Federated’s performance in a document filed Tuesday detailing the offer by Macy’s, whose chairman is Edward S. Finkelstein. Using those, as well as 2-year-old figures filed by Macy’s when it converted to private ownership, one analyst tentatively placed a value on stock in the Macy’s/Federated combination of $49 to $57 a share, well above the $44 in cash that Campeau wants to pay.

But many speculators have indicated that they would prefer cash to stock in a company that would be loaded with debt. “Macy’s deal is much more attractive” than Campeau’s for the long term, said the analyst, who asked that he not be named. “But Campeau has the timing advantage.”

In an effort to gain some time, Macy’s filed suit Tuesday in U.S. District Court in New York alleging that Campeau’s most recent offer for Federated stock should be delayed. Macy’s argues that the Toronto development firm’s offer constitutes a new bid, rather than an amendment of its original Jan. 25 offer to pay $47 a share for all of Federated’s outstanding shares.

Macy’s argues that the offer bears little resemblance to the original bid and therefore should be considered a new offer. “One, Campeau has changed the structure of its offer,” said a lawyer for Macy’s. “And at 31 pages, its offering document is longer than the initial offer to purchase.”

‘Without Merit’

In particular, Macy’s singled out the way Campeau has structured its offer. By offering $75 a share to the first 80% of shareholders who offer to sell their shares, Campeau is trying to induce shareholders to sell out early to avoid getting less for their shares later.

The Macy’s suit alleged that Campeau’s offer is “coercive” and designed to “stampede Federated stockholders into tendering their shares to Campeau” to avoid receiving Campeau’s “inadequate” $44-a-share payment for the last 20% of shares redeemed.

“It penalizes the shareholder who doesn’t get into the 80% group,” the Macy’s lawyer said.

A Campeau attorney countered that the case is “entirely without merit.” Securities and Exchange Commission rules, he said, “are absolutely clear that when you amend an offer to change the price or the number of shares, you need to extend the offer for 10 days, which we did.

“The game here,” he added, “is that they’re trying to delay our offer for as long as they can because they know . . . that everyone will tender to us on March 15.”

In documents filed Monday with the SEC, Campeau indicated for the first time that it would consider selling I. Magnin, a San Francisco-based specialty fashion store; Goldsmith’s, a Memphis department store chain, and Filene’s Basement, a bargain-basement offshoot of Filene’s in Boston. Those sales would be in addition to anticipated sales of Compton-based Ralphs and other non-department store operations of Federated.

A sale of Ralphs by Federated, whose chairman is Howard Goldfeder, has been expected since soon after Campeau launched its takeover effort. The 129-store chain, which employs more than 16,000 in Southern California, is thought by Campeau to be easily worth $1 billion.

In its documents, Campeau expressed concern that Federated appeared to be favoring a $955-million bid by Ralphs management over two higher bids by supermarket operators. The highest bid of six formal offers weighed in at $990 million and was made by Lucky Stores of Dublin, Calif., according to sources close to Campeau.

In composite New York Stock Exchange trading, shares in Federated declined 62.5 cents a share Tuesday to $66.