Campeau Sweetens Its Bid for Federated, Asks for a Friendly Merger

Campeau Corp., which lost its advantage in the battle for Federated Department Stores Inc., sought to regain the edge Tuesday by sweetening its bid and proposing a friendly merger to the Federated board of directors.

Campeau raised its two-tier, all-cash offer to about $73 a share, or $6.53 billion, from $68 a share, or $6.18 billion. Under the new offer, Campeau said it would pay $82 each for 70.5 million Federated shares and $37 for the remainder of Federated’s 89.5 million shares outstanding in a subsequent merger.

At the same time, Campeau extended the deadline for expiration of its offer until midnight EST April 4, when a competing $6.3-billion tender offer by R. H. Macy & Co. is due to expire.

Campeau, a Toronto-based developer, also sent a letter to the Federated board, proposing a friendly merger under which it would pay $73 for 70.5 million shares in a tender offer, and pay $73 for the remaining shares after the two companies are combined.

Federated has already agreed to merge with Macy’s, which is offering $77.35 a share in cash for 70.43 million Federated shares, for a total of $5.4 billion. Macy’s would exchange shares in the merged company, Macy’s-Federated Inc., and issue convertible debt securities for the remainder of Federated’s 89.5 million outstanding shares.

Analysts have estimated the total value of Macy’s offer at $6.3 billion.

Federated stock was up $2.375 to $69.25 a share in New York Stock Exchange composite trading Tuesday. Campeau announced its sweetened offer an hour before the end of the session.

Offer Expected

Macy’s had no immediate comment on Campeau’s move, said Maureen Milano, a spokeswoman for the retailer.

Jim Sluzewski, a Federated spokesman, said that if the Federated board received a revised offer from Campeau, the directors would consider it. He said the board was scheduled to meet this week, but would not confirm that the revised offer would be on the agenda.

In its letter to the Federated board, Campeau proposed that a Campeau-Federated merger be structured along lines similar to the retailer’s agreement with Macy’s.

Campeau had been expected to sweeten its offer or propose a friendly deal after the company lost two rounds in court to have Federated’s “poison pill” takeover defense invalidated.

Nancy Raeside, a Campeau spokeswoman, said the company will continue to fight the pill, which Campeau contends will prevent it from completing any takeover of Federated.

The defense makes a takeover prohibitively expensive by allowing Federated shareholders to buy more of the company’s stock at a steep discount.

On Monday, a federal judge rebuffed Campeau’s proposal to extend its tender offer so it would expire simultaneously with Macy’s offer if he removed the pill.

U.S. District Judge Leonard Sand, in a closed-door session, said the pill would remain in place at least until Federated makes a final recommendation to its shareholders, Raeside said. On Friday, Sand turned down Campeau’s request to invalidate the pill.

Attractive to Shareholders

It was not immediately clear how a simultaneous expiration of both offers would affect the application of the pill, over which Federated has sole discretion.

“That’s not something we can really comment on at this point,” said Federated’s Sluzewski.

Before Sand’s ruling, analysts had given Campeau’s all-cash offer the edge over Macy’s cash-and-stock bid.

But Campeau appeared to regain the advantage with its sweetened offer, said Edward Johnson, an analyst with Prescott Ball & Turben Inc.

Johnson said Federated shareholders likely would jump to take advantage of the higher price in the first tier of Campeau’s offer. “It puts Campeau’s bid ahead and leaves the ball up to Macy’s,” he said.

Campeau said it also would continue to fight agreements between Macy’s and Federated that would allow Macy’s to receive millions of dollars in the event the Macy’s-Federated deal falls through.