Federated Takeover by Macy Not a Certainty
A takeover of Federated Department Stores by R. H. Macy & Co. was far from a sure thing Thursday as investors began wrestling with more conflicting advice about what to do.
Although Federated’s board has recommended the Macy’s bid, many investors said they are attracted to the short-term appeal of the rival all-cash offer by Toronto developer Campeau Corp.
Investors were disgruntled with the prospect of being forced to accept stock in a combined Macy’s/Federated company as partial payment from Macy’s, observers said. Some investment analysts have advised clients to sell their shares to Campeau.
The Canadian firm is offering $75 a share for the first 80% of Federated’s shares that are tendered and $44 a share for the rest, with the offer set to expire next Tuesday.
Macy’s has a similar two-stage offer that would pay $74.50 a share for the first 80% and stock in Macy’s/Federated for the rest. It would expire April 4.
“Given the timing, with Campeau’s offer expiring first, you’ve got to tender to Campeau because the last thing in the world you want is to be shut out on Campeau’s front end if Campeau is successful,” one Wall Street analyst said.
‘Not Surprising’
On Wednesday, Robert M. Raiff, co-director of research at the C. J. Lawrence investment firm in New York recommended that clients sell to Campeau. Others followed suit, indicating dissatisfaction with the value of Macy’s offer.
“Basically, it’s not surprising that no one wants the Macy’s wallpaper,” one Wall Street source said. “If it’s such a premier retailer, let them take it public. Don’t cram it down investors’ throats.”
But another analyst, acknowledging that it’s impossible to know which course is better for long-term investors, said the Macy’s/Federated combination holds great promise. “The value . . . will surprise people on the upside when it’s out there awhile,” said William N. Smith, of the Smith Barney, Harris Upham investment firm in New York.
Crucial to both Macy’s and Campeau’s strategies, observers said, will be a court decision that could be made as early as Monday. Judge Leonard B. Sand in U.S. District Court in New York has scheduled a hearing to consider the legality of Federated’s so-called poison pill defense, which would allow shareholders to buy shares at a discount in the event of a hostile takeover attempt.
Campeau has sued, alleging that the defense is being used as a “show stopper” designed to prevent Federated shareholders from deciding for themselves whether to accept Campeau’s offer “or to gamble on the uncertain value of the deal with Macy’s.”
A ruling against the poison pill would be a significant victory for Campeau. Observers say much of the firm’s financing for the deal would fall into place if the poison pill were ruled illegal.
American Stores a Bidder
The price of shares in Federated, owner of Ralphs supermarkets and Bullock’s department stores, continued to slide as investors unloaded stock. In composite New York Stock Exchange trading, the shares fell 87.5 cents to $64.75, with more than 1.7 million shares changing hands.
Separately, a Wall Street source identified American Stores as a bidder for Federated’s Ralphs division. The Salt Lake City-based company, parent of Alpha Beta, reportedly has bid $961 million for Ralphs, a 129-store competitor based in Compton.
Observers speculate, however, that the lead bidders are Lucky Stores of Dublin, Calif., with a $990-million offer, and Ralphs management, with a $955-million bid.
