Macy Sweetens Offer for Federated to $6.3 Billion to Try to Top Campeau

R. H. Macy & Co., its bid for Federated Department Stores apparently in trouble, Monday raised its offer by $200 million to $6.3 billion in hopes of beating a rival bid by Campeau Corp.

The bid was immediately embraced by the Federated board, which also granted Macy’s an option to buy its Bullock’s, Bullocks Wilshire and I. Magnin stores for a total of at least $950 million.

Meanwhile, the success of either Macy’s or Campeau seemed to focus on the outcome of a federal court hearing in New York Monday, in which Campeau’s lawyers sought to halt a key provision in Federated’s takeover defense. At the same time, lawyers for Macy’s argued to extend Campeau’s hostile tender offer.

But after hearing 3 1/2 hours of arguments in a crowded courtroom, Judge Leonard Sand said he would not make a ruling until Wednesday at the earliest. Sand said he is waiting for an opinion from the Securities and Exchange Commission, among other things.

“The bids could be irrelevant depending on the outcome of the hearing,” said Sarah Stack, retail analyst at Bateman Eichler, Hill Richards in Los Angeles. She noted that Federated’s shares on the New York Stock Exchange closed at $66, unchanged from the previous day’s trading.

The new Macy’s bid did not stir up much enthusiasm with many on Wall Street. “It is not significantly better than the previous bid,” said retail analyst Monroe Greenstein at Bear, Stearns & Co. “It has to be significantly better than Campeau’s offer.”

Under its new offer, Macy’s will pay $77.35 a share--versus $74.50 under the previous bid--for the first 80% of the Federated shares it receives. The remaining shareholders would receive stock in the combined Macy’s-Federated company.

Bid Didn’t Impress Campeau

By contrast, Campeau’s bid would pay $75 a share in cash for the first 80% of the stock it receives. The remaining stockholders will receive $44 a share in cash.

Macy’s, in return for its sweetened bid, was granted options to buy Bullock’s, Bullocks Wilshire and I. Magnin. “That is trying to make (Federated) a little less attractive to Campeau,” said William Smith, a retail analyst with Smith Barney, Harris Upham & Co.

The new Macy’s bid did not impress Canadian developer Robert Campeau, who said he would not raise his company’s $6.1-billion bid for Federated. “My bid is for a hell of a lot more money,” he told Dow Jones News Service. “We’re not boosting anything. . . . I’m not going to raise the bid. That’s it.”

Meanwhile, as expected, Campeau’s company extended its offer, which was to expire today, until Friday. The move was designed to give Judge Sand more time to consider the case, according to a Campeau spokeswoman.

‘$1-Billion Showstopper’

Sand also stated during the hearing that both offers would have to remain in effect for at least three business days after he ruled, effectively extending Campeau’s offer through next week.

In its court arguments, Campeau said the defeat of the “poison pill” is crucial if it is to line up the necessary financing for the offer. Campeau is about $1.5 billion short from completely financing the deal. Without complete financing, Campeau said its takeover bid would collapse.

The poison pill would allow shareholders to buy stock at a discount in the event of a hostile takeover attempt, and thus make a hostile takeover far more expensive.

Campeau lawyer Frederick A. O. Schwarz Jr. told the judge that Federated’s takeover defense was a “$1-billion showstopper.” In previous cases, he argued, such defenses were dropped if the sale of the company was inevitable or when bidders had submitted similar offers.

Stuart Shapiro, attorney for Macy’s, defended Federated’s poison pill. He said the defense enabled Federated to raise the price that it got for its shareholders.

Shapiro argued in favor of extending Campeau’s bid past Friday. By doing so, Macy’s hopes to reduce the pressure on Federated stockholders to accept the Canadian company’s bid.

Judge Sand indicated that he would take a cautious approach. “A court should intervene as little as possible in what is essentially a struggle in the marketplace,” he said.

Federated is the largest U.S. department store operator and owns such chains as Bloomingdale’s and I. Magnin. Industry experts say a merger between New York-based Macy’s, which has a strong management, and Federated would create a powerful retail concern, but market analysts tend to prefer Campeau’s offer.

“We’re not that impressed by the Macy offer,” a stock speculator said on Monday. “I think they have to do more so people don’t tender to Campeau. Our initial reaction is that it’s weak, surprisingly weak.”

Many Twists, Turns

“People were expecting more from Macy as far as cash consideration goes,” said Janet Mangano, an analyst with Josephthal and Co. “As far as the highest present value of the deal goes, I still think you have to go with Campeau.”

The bitter takeover contest has taken many twists and turns since Campeau first started bidding for Federated on Jan. 25. The tenacious Campeau, which won Allied Department Stores Inc. in 1986 after a protracted battle, has raised its offer by about $2 billion.

It also has moved to assure Wall Street that it has the resources to pull off the multibillion-dollar deal. Campeau has announced agreements to sell its clothier Brooks Bros. to Britain’s Marks & Spencer for $770 million and its Boston-based Filene’s and Houston-based Foley’s chains to May Department Stores Inc. for about $1.5 billion--assuming the merger goes through.

Paul Richter reported from New York and Jesus Sanchez reported from Los Angeles.