They called it Store Wars, and the casualty list keeps growing.
To date, more than 4,000 jobs have been lost at some of the nation's best-known department stores. Chains like Brooks Bros., Bullock's, Ralphs and Bloomingdale's have been bought, sold and traded like so many baseball cards.
Giant Federated Department Stores, a company that set the pace for much of retailing in the '60s, '70s and early '80s, is history. What's left of the company is now owned by a forceful French-Canadian developer, Robert Campeau, who is already reshaping the retailer in ways that will be felt by American shoppers in the '90s.
Son of an auto mechanic, school dropout at 14, one-time factory worker, real estate magnate and takeover artist extraordinaire, Campeau swooped down on Federated Department Stores on Jan. 25. Ten weeks and an epic battle later, on April Fool's Day, he succeeded in winning it.
How did the deal come about? What happened in New York and London and Toronto during those 10 weeks that enabled Campeau to emerge victorious? How did a $4.2-billion offer push its way to nearly $7 billion before the fighting was done?
And how did the deal twice slip through Campeau's hands before it was finally sealed with a bottle of fine French champagne at a New York townhouse?
It was at first a battle of wills between a cautious and perhaps contemptuous Federated that thought it had little to fear from Campeau, who first spoke up with nary a penny of financing. But by the end, Federated became little more than the object of desire as it watched Macy's and Campeau fight over the pieces.
With this deal, Campeau, a tough, unorthodox executive with a big ego and enormous drive to build an empire, has touched thousands of lives, not always for the better. The takeover is symptomatic of today's corporate America, where workers' livelihoods are often sacrificed in the name of efficiency and the megabuck deal.
In recent interviews in New York, more than 20 investment bankers, lawyers, publicists and executives discussed the deal's genesis and behind-the-scenes evolution. What emerges is a portrait of a man with guts and vision who surrounded himself with strong-minded lieutenants to do battle with equally determined opponents.
The argument could be made that all three companies--Federated, Campeau Corp. and R. H. Macy & Co., a rival bidder--won by losing or, conversely, lost by winning.
Federated lost its independence but garnered a terrific price for shareholders. Macy's lost out on Federated but walked away with coveted California properties. And Campeau won his quarry but now must make a go of a mammoth retailing organization at a time when retail sales are hurting.
Litany of Lost Jobs
The 64-year-old Campeau pursued Federated with a single-minded zeal and the energy of a much younger man, typically phoning advisers at 3:30 in the morning. He was like a gambler going for broke, selling off his favorite pocket watch and his mother's silver for the sake of squelching a formidable competitor.
"When we realized that he had an unlimited budget and was prepared to exceed it, our job turned into a challenge of capturing an advantage from this unusual situation to gain a desired and sensible result for our client," said Peter D. Goodson, a Macy's investment adviser at Kidder, Peabody & Co.
To Campeau watchers, the litany of lost jobs reads much like an earlier one, after he launched his retailing career with the controversial, $3.5-billion purchase of Allied Stores in late 1986. In that deal, advisers urged Campeau to launch a hostile "street sweep" of Allied shares, and literally overnight he bought enough shares on the open market to control the company. Afterward, thousands of jobs were lost as Campeau trimmed ranks and sold divisions.
Unsated, Campeau set his sights on Federated. The price of success was high--$6.6 billion officially, but more like $8.8 billion by Campeau's own reckoning of the total price tag. The marathon deal set records as the largest outside the oil industry and the largest successful hostile bid.
For Campeau's strategists, the deal entailed round-the-clock meetings, missed vacations and stressed-out family lives. But ultimately the takeover also meant fat fees (at least $60 million for the investment banks alone) and rich bonuses for the already well-paid individuals involved.
"One could say it was a hell of a price to pay for Bloomingdale's," one Federated source would say later.
Admirers and foes alike describe Campeau as by turns demanding and charming, mercurial and charismatic. "He is a very intense man," said Allen Finkelson, a Campeau attorney and close friend. "He feels the pressure like all of us. If he's angry, he lets you know it."
But after a blowup, Finkelson added, "he's also quick to apologize."
Fond of lavish living, a daily swim and jet-setting to European health spas, Campeau must find his prominence in the business world a far cry from humble beginnings as one of 14 children of an auto mechanic in the northern Ontario mining town of Sudbury.
In his mid-20s, he left his job at a nickel mine to go into the real estate business and spent years building a land empire. Eight years ago, in a rare defeat, Campeau was thwarted in his effort to buy a big Canadian trust company, Royal Trustco Ltd. That setback, which he charged was engineered by the English-speaking Canadian business elite, probably accounts for much of his current drive.
"We were not unaware of Robert Campeau's psychological profile, his feeling that he is an outsider," said one member of the Federated camp.
Campeau's ego wasn't the only one at stake. "His advisers had a lot of reasons to win at all costs," said a Macy's adviser.
"Ultimately, what the transaction boiled down to was simply a test of will over a 2 1/2-month period, where people were basically living this deal night and day under very exhausting circumstances," said J. Tomilson Hill, head of mergers and acquisitions at Shearson Lehman Hutton, Federated's investment bank.
"It was simply a question of who was going to blink in an elaborate chess game where Federated's first priority was to remain independent and then, recognizing over time the inevitability of a sale, to maximize the price for shareholders."
Here is how it happened.
Robert Campeau's team put down the roots of the Federated deal last August, when, in the words of an adviser, "the heat affected everybody's thinking."
Although the Toronto developer had taken over Allied Stores just seven months before, he was already eager to move on to a bigger opportunity. He had a particular bent for Federated, with its fashionable franchises and plentiful real estate. Most of all, he hungered for Bloomingdale's, a hot-ticket chain with expansion potential.
Given the season and Federated's Cincinnati headquarters, his investment advisers' thoughts turned to baseball. M. Jeffrey (Jeff) Branman, a vice president at First Boston, Campeau's investment bank, dubbed their secretive analysis of Federated "Project Rose," after longtime Cincinnati Reds star Pete Rose.
For weeks, Branman, Allan B. Ruchman, a First Boston director, and Kenneth H. Colburn, a First Boston managing director, crunched numbers for Federated's 15 divisions. "We wanted to know more about the stores than the people who owned them did," said Bruce Wasserstein, then the high-powered co-head of mergers and acquisitions at First Boston.
Then came the Oct. 19 stock market collapse. With Federated's share value depressed, the deal suddenly looked even more desirable. All that was left to be decided was how and when Campeau would launch an offer.
A tough anti-takeover measure was in the works in Delaware, where Federated was incorporated. The advisory team and Campeau discussed whether to make an offer that would start the clock ticking in the hope that the deal could be "grandfathered in." Then, in mid-January, Manhattan developer Donald J. Trump asked the government for permission to buy a big chunk of Federated's stock. Campeau's camp feared that other bidders might surface.
Allen Finkelson, a partner at Campeau's New York law firm, Cravath, Swaine & Moore, and the Canadian's chief consigliere, prodded him to make the bid. A former investment banker, Finkelson had been instrumental in persuading Campeau to buy up a controlling stake in Allied.
When it came to price, Campeau himself made the choice to pounce with a low-ball offer of $47 a share, or about $4.2 billion--on the slim hope that he could gain an inside track on the Delaware legislation.
A blow came on Feb. 2, when First Boston's top merger specialists, Wasserstein and Joseph R. Perella, defected to start their own firm. Campeau was committed to First Boston, but he valued the advice of the scholarly looking and often rumpled Wasserstein.
Despite the promise of logistical nightmares, Campeau retained both firms. That afternoon, Wasserstein and the First Boston team met with Campeau and Finkelson in the Canadian's Waldorf Towers suite. The 2,500-square-foot suite, lavishly furnished with English and French antiques, was often filled with dozens of lawyers and bankers meeting in the 50-foot-long living room and, occasionally, spilling over into a bedroom or the elegant dining room.
At Campeau's outside public relations agency, Adams & Rinehart, Joele Frank and Nancy Raeside were fielding as many as 400 calls a day. "It was bedlam," they recalled. Some days, the two put out as many as three news releases, eventually amassing a total of more than four dozen.
Federated Under Siege
Campeau's unexpected gambit threw Federated attorneys at the law firm of Skadden, Arps, Slate, Meagher & Flom into a frenzy.
On the evening of Sunday, Jan. 24, partner James C. Freund learned of the bid in a call to his weekend home in Easton, Conn., from Federated Vice President and Secretary Boris Auerbach. Freund recalled his first thoughts: "We knew that we had to marshal our forces and that we were in for a period of uncertainty--and kiss your families goodby for the next three months." He knew it also meant an enforced hiatus from his favorite hobby of playing jazz piano.
Soon, the merger specialist, who 2 1/2 years ago saw control of client Trans World Airlines taken over by raider Carl C. Icahn, found himself embroiled in another battle worthy of inclusion in his recent book of essays on negotiating, "The Acquisition Mating Dance."
Federated dismissed Campeau's price as inadequate and his proposed deal as illusory because no financing was in place. But the company also recognized that Campeau was tenacious. "That had been shown in the Allied takeover," Freund said, "that he was willing to put his money where his mouth was."
But Federated argued that the offer wasn't valid until Campeau showed the color of his money. "We weren't going to become convinced until he began to turn his cards over," said J. Tomilson (Tom) Hill, who during the battle was promoted to director of mergers and acquisitions at Shearson Lehman Hutton, Federated's investment bank. "Nobody really understood how well Campeau had done in the Allied deal."
Skadden attorneys set about devising a defense in state and federal courts where Campeau was challenging the legality of anti-takeover laws and of Federated's "poison pill" plan, a common anti-takeover device that would allow stockholders to buy shares at a discount and drastically force up the purchase price for a hostile bidder. The pill made lenders reluctant to commit funds to Campeau.
Stuart L. Shapiro, a senior litigation partner who previously defended the Texaco-Getty merger agreement in a Delaware court, and partner Samuel Kadet were both intent on taking off on separate Caribbean vacations. They stayed up most of Monday night, then filed a motion to dismiss Campeau's poison pill suit in a federal court in New York.
Federated, with annual sales of more than $10 billion, had already had a takeover fire drill in late 1986 when it paid nearly $200 million to buy out Herbert and Robert Haft--at a loss to the corporate raiders. "We had taken steps such as implementing the pill to prepare ourselves for a possible attack," Freund said, "and we figured that the company would be a big bite for most bidders."
As soon as Campeau's offer went public, his advisers began phoning banks in an effort to line up funds. Federated, it turned out, had beaten them to the punch. Federated was tinkering with a reorganization and had lined up the banks to finance it.
On Feb. 3, Campeau floated the idea of sharply raising his bid, to $61 a share, if Federated would agree to a friendly deal. The board rejected the lower, $47 bid outright and again demanded evidence of financing.
"We were doing very anti-Campeau things in the beginning, but we had never reached a point of cutting off completely the possibility of a deal with him," Freund said. "You couldn't tell if you got into a contest whether Campeau might not be the guy that in the last analysis would be willing to pay the best price."
Federated started making plans to borrow cash to distribute to shareholders and to sell off divisions, among them Ralphs Grocery, to help pay off the debt.
By now, Federated Chairman Howard Goldfeder, who was coming under harsh criticism as having contributed to the retailer's vulnerability, was traveling frequently by company jet between Cincinnati and New York. He and the far-flung directors would either meet at Skadden's midtown Manhattan offices or talk in frequent conference calls that proved to be marvels of organization.
Federated's directors were constantly shuffling personal obligations. Board member Marvin S. Traub, the chairman of Bloomingdale's, cut short a ski vacation in Deer Valley, Utah, to attend one session. Later, he had to hook up by phone from Frankfurt, West Germany, and then Paris, where he was attending designers' ready-to-wear shows. "I missed the Dior collection in favor of a conference call," he said.
From the beginning, Campeau delivered a barrage of letters to the board that reiterated three key points: "We can pay the most. We have synergies. We want a friendly deal." Rob Kindler, a partner of Finkelson at Cravath, Swaine & Moore, noted that "the letters were always turning up the heat on everyone involved. Postage is the cheapest way."
Even Federated representatives acknowledge that the letters were quite well timed. At one point late in the battle, when a Cravath paralegal delivered another in a string of letters to the board, there were grunts and sighs from the directors.
Up Goes the Ante
At 2 a.m. Friday, Feb. 12, Finkelson arrived at the Breakers resort hotel in Palm Beach, Fla., with his wife, Susan, and four children to attend a party for his parents' 45th wedding anniversary. He was greeted by a message from Campeau.
This was not unusual. Finkelson, who met the developer in spring, 1986, was used to starting his day with a 7 a.m. call from Bob Campeau.
The message, though, had a greater sense of urgency than usual. Word on Wall Street was that Kohlberg, Kravis, Roberts, a buyout firm, planned to bid for Federated. Finkelson spent the next 24 hours on the phone figuring out a preemptive strategy.
In one call, Joseph H. Flom, Federated's chief legal strategist at Skadden, told Finkelson that he felt the Campeau financing was "held together with gum balls." The idea caught the Campeau team's fancy. These days, Finkelson offers visitors to his Wall Street office gum balls from a plastic machine given him by the First Boston team.
Meanwhile, back in New York, Campeau's advisers succeeded in keeping KKR at bay by proposing to pay "in excess of" $65 a share.
Early on Saturday morning, Finkelson boarded a plane for New York and that weekend attended the first face-to-face meetings with Federated advisers. First Boston's Ruchman, Finkelson's cousin by marriage, squeezed in sessions around visits to Lenox Hill Hospital, where his first child, Zachary, had just been born.
Debt Load Feared
By Feb. 16, Campeau had decided to formally bump his bid to $61 a share, and he indicated that he might go several dollars higher in a friendly merger. As Campeau's side had correctly figured, Federated's restructuring didn't measure up to the loftier values.
Federated management--particularly Goldfeder, Traub and Allen I. Questrom, a former Bullock's chairman who was named a corporate vice chairman and board member just as the takeover battle began--was not enamored of a leveraged buyout, fearing that the heavy debt load would cut off growth. So the board began talking with other retailers and developers--including Dillard Department Stores in partnership with developers Melvin Simon & Co., May Department Stores and R. H. Macy & Co.--that might be capable of a takeover.
For the Federated side, most action took place at Skadden. The Campeau advisers would trudge by foot from Campeau's Waldorf suite to First Boston to the Allied Stores offices on 42nd Street and by taxi to Cravath's offices downtown.
The involved deal making was wreaking havoc with personal lives. The complex battle lasted about three times as long as the average merger.
"This was a tough deal," agreed Michael B. Rothfeld, a First Boston managing director involved in securing certain financing for the Campeau deal. "The Allied deal was brilliant long passes and end-run razzle-dazzle. This one was a tough ground game."
Families were largely left in the lurch. Campeau demanded access to advisers at any hour. Early one morning, an investment banker's wife answered a call from Campeau and told him that her husband was in the shower. "Get him out," Campeau replied. "All wives hated this deal," the adviser acknowledged. "Mine was talking divorce and said this was the last straw. She wanted me out of investment banking."
Colburn, whose home is in Connecticut, usually slept at his city apartment and saw little of his family. One Saturday morning, his wife, Ginny, brought their two children into his E. 52nd Street office to have juice and rolls with Dad.
Kindler's wife, Pamela, single-handedly organized the family's move to a new house in Rye and cared for their two small children when they came down with chicken pox. When one adviser was unable to break away for a long weekend with his wife in Puerto Rico, she went alone to look at a winter vacation home. She later bought the place--sight unseen by her husband.
The Turning Point
In late February, Marks & Spencer helped turn the tide for Campeau.
The legendary British merchant, which started as a penny bazaar in 1884 and is known affectionately to royalty and commoners alike as Marks & Sparks, had for years had its eye on Brooks Bros. The retailer's chairman, Lord Rayner--described by associates as "an Americanophile"--viewed the bastion of classic American dressing as a way for the company to plunge into the U.S. market.
Twice, Marks & Spencer approached Campeau's advisers about buying the chain, and twice it was rebuffed.
Lord Rayner persevered. Early in January, at First Boston's suggestion, he spent a bitterly cold Saturday talking with Campeau during a tour of Scotiabank Plaza, a Campeau business project in Toronto's downtown. Here they were, a Briton with a life peerage and a French-Canadian developer, deciding the fate of the all-American clothier. They got on extremely well, but Campeau again turned Lord Rayner down on Brooks Bros.
Soon after, Campeau, in need of funds, suggested that Marks & Spencer buy a stake in his company. It was Lord Rayner's turn to say no.
But Campeau had decided that Marks & Spencer would figure in his plans. Ruchman flew to London to lay the groundwork for a Brooks Bros. sale over dinner at the Ritz with Marks & Spencer representatives. After Campeau arrived, the two sides struck a deal.
Thanks to the time-warping Concorde (and the time difference), Ruchman zoomed out of London at 7 p.m. and arrived in New York at the same hour, leaving him the rest of the night to work out details at Cravath's offices. Feeling pleased, Campeau headed to Germany and Austria for a holiday.
In New York, his team issued a double-barreled announcement Feb. 25 saying that it would pay $66 a share and sell Brooks Bros. The statement also disclosed agreements--arranged largely by Campeau himself--that would provide cash from Ohio developer Edward J. DeBartolo and the wealthy Reichmann family of Toronto.
All the names and numbers were calculated to make a huge impression. "People like DeBartolo and the Reichmanns add a lot of credibility," Kindler said. "Our whole public relations thrust was to do exactly that."
The blockbuster Brooks Bros. deal proved to be a turning point. "It was the deal that broke the back of the other side in terms of them deciding that yes, they would be sold--and to us," Finkelson said.
Tom Hill of Shearson acknowledged the effect. "That single deal convinced us at Shearson Lehman that he could raise the money." It also upped the ante for everybody.
Campeau Wins, Briefly
By the time Federated's board met on Thursday, Feb. 25, it was clear that no one was willing to top what Campeau was dangling. With a hint of resignation, Federated invited the Campeau advisers to speak face to face with the board for the first time--if they would raise to $68 a share.
Campeau wasn't even in New York for this big moment. Finkelson started calling restaurants and hotels in Austria to find out whether Campeau would agree to the new price. He had no luck and headed to Skadden's offices, where a paralegal who spoke German eventually tracked Campeau down. He gave the nod to $68.
In the meantime, Federated's directors had been cooling their heels in the law firm's offices or nearby cafes. Once Campeau had been reached, everyone crowded into a 43rd floor conference room.
First Wasserstein spoke, saying he and the other Campeau advisers understood that Federated would agree to a deal at $68 and that the two sides would work all night on an agreement and sign the document the next morning. An agitated Howard Goldfeder abruptly called Freund and Tom Hill of Shearson into the hallway to protest, noting that he felt they would need the full weekend to negotiate details. That made Campeau's team nervous, but they decided to make the presentation anyway.
The board members listened in stony silence to Wasserstein, Finkelson and James Maher, the new head of mergers and acquisitions at First Boston. Goldfeder and the directors challenged Campeau's team on several issues. "We were the bad guys, and Campeau was the enemy," said one Campeau adviser.
By 10 p.m., when the meeting was wrapping up, Finkelson again pushed Federated to sign an agreement, but Goldfeder made an impassioned plea to the board to wait, and he prevailed. On Friday, Federated announced that the two sides were negotiating a deal for $68 a share, and it seemed that Campeau had all but won.
Throughout the weekend, Freund haggled 18 hours a day with Finkelson and Kindler of Cravath at his office. They eventually caved in on a key point, offering to forfeit a $250-million penalty if Campeau did not line up financing within 90 days. It was the first time a takeover would have been attempted on such a basis--with no bank funds in place but a big chunk of money in escrow that could be sacrificed.
In time for the morning board meeting on Monday, Feb. 29, Kindler sent over 60 clean copies of the agreement to Federated. He and Finkelson figured that all that would remain would be some last-minute negotiations after the meeting. Kindler, in fact, strolled in to work on Monday later than usual, about 10:30 a.m.
A grim-looking Finkelson greeted him with a Federated news release indicating that a new bidder had emerged. They were annoyed and frustrated. And they had the distinct feeling that Goldfeder had simply been stalling in the hope this would happen. Campeau, seemingly so close to victory, had been foiled.
Macy's Cranks Up
The mystery bidder was Macy's. "Store Wars" was now in full swing.
Freund got a call at midnight Sunday, after Finkelson and Kindler had left his office, to join Macy's advisers and Federated officials at Macy's law firm, Weil, Gotshal & Manges. "I don't know to this day what it was that made Macy's change their mind," Freund recalled, "but I have to feel that they read in the paper that we were negotiating a deal with Campeau, and they knew that this was their final chance."
Some of Macy's own advisers were surprised.
The night before, Peter D. Goodson, managing director in charge of merchant banking at Kidder, Peabody & Co., Macy's investment bank, had left New York for Tokyo to give a speech before a group of top Japanese business leaders. When he landed Sunday night, he got word that Macy's had decided to proceed.
Goodson gave his speech, then promptly headed back to New York. From the airport, he headed to Weil Gotshal's offices. He was punchy from lack of sleep. Weeks later, he was still suffering from the bronchitis that he blamed on those sleepless, hectic days.
From Drexel Burnham Lambert came Leon D. Black, managing director for corporate finance, who was nursing a 104-degree fever and bronchial flu, and two M&A; managing directors, Dean Kehler and Jeff Beck.
The advisers liked the deal on several counts. First, Macy's had done a praiseworthy job under Chairman Edward S. Finkelstein of digging out from much of its buyout debt. Federated had terrific locations, great expansion opportunities and, by most accounts, had been undermanaged. And there was another benefit: If the takeover were set up properly, Macy's could go public again at a substantial gain to existing shareholders.
Although the Federated side had figured that Macy's could not muster up enough funds, here it was, hopping back in with a vengeance--and with a twist.
The offer, which Finkelstein presented to the directors on Monday, consisted of two parts. Shareholders would receive one portion in cash and the rest in stock in a new Macy's-Federated venture. Macy's clearly had the inside track with the board.
The potential of a merchandising juggernaut with the cachet of Federated's franchises and the retailing savvy of Macy's Finkelstein intrigued many Wall Street analysts. But speculators holding Federated shares bellyached that the bid didn't measure up to Campeau's all-cash proposal.
It became clear to Campeau that a friendly deal was out. That meant lining up more funds to bolster confidence in his bid. Campeau modified his bid to pattern it on Macy's two-tier offer, with shareholders to receive cash in two stages. (Ironically, Wasserstein, a key Campeau adviser, had pioneered the two-tier bid in Du Pont Co.'s 1981 takeover of Conoco.)
The shuffling of Federated stores continued in earnest. May Department Stores soon gave a boost by agreeing to pay a hefty $1.3 billion to $1.5 billion for Filene's in Boston and Foley's in Houston.
For awhile, Campeau went underground. He and Finkelson even managed to escape for some skiing in Vail. With the deal at a critical juncture, the two spent hours negotiating by phone with Citibank, the lead commercial bank arranging the financing.
Of the Vail experience, Finkelson said wryly: "You don't want to be on a chairlift with your client at a critical time of the deal."
Fond of competition, Campeau had hoped to beat Finkelson at a few impromptu contests on the slopes and recapture the Campeau Cup, a trophy Finkelson had won the year before for the best carved turns. But every time the two planned an event, a phone call would force a postponement. Finkelson kept the trophy, but at least there was solid progress on getting funds.
To the Federated board, the addition of Macy's set the stage for an old-fashioned bidding war and more trading of Federated divisions.
On Monday, March 14, a higher Macy's bid was quickly embraced by Federated's board, which also granted a key concession: an option for Macy's to buy Bullock's-Bullocks Wilshire and I. Magnin.
At 5 that afternoon, Stu Shapiro of Skadden and Frederick A. O. Schwarz Jr., known as Fritz, a Campeau attorney from Cravath and grandson of the founder of the F. A. O. Schwarz toy business, were to argue over Federated's poison pill in U.S. District Court. Shapiro fortified himself with a nap and a couple of glasses of Bordeaux at his home, then headed to the courthouse, where he found about 250 people crammed into a hot hearing room. Another Skadden partner showed him a piece of Dow Jones News Service copy quoting Robert Campeau as saying he did not plan to raise his offer.
The news unsettled Schwarz, who was forced to admit in court that Campeau did not plan to raise his bid if the pill were removed but might if the pill were left in place.
Shapiro made a dramatic but simple argument. "We're still squeezing the bidders," he told Judge Leonard B. Sand. "Don't stop the auction." The judge ruled for Federated.
By then, advisers for Campeau and Macy's were in almost daily contact in a vain effort to reach an agreement to end the leapfrog bidding.
On March 22, Campeau formally changed his tender offer to $73--a one-fell-swoop increase of $5 a share--in the hope, as one adviser put it, of "blowing Macy's away." Advisers defend his decision to keep bidding up the price.
"We kept hearing higher and higher prices for the Federated assets," said Mack Rossoff, a 1970 graduate of Palos Verdes High School who left First Boston in February to become a managing director at Wasserstein, Perella & Co. "That gave us a different view of the value. Another thing is that the banks were coming out of their shell and were willing to lend more."
Freund decided to inject a little levity. A Skadden employee who knew Latin translated "Let the Auction Continue" as Auctio Procedat , and Freund put the slogan on a bunch of black pins. Later, he distributed pins to the board showing a hand with a gavel slamming down. It read, Iens...Iens...Iit!!, for "Going, Going, Gone."
But Federated wasn't gone yet.
Macy's and Campeau were to get one last shot. On Monday, March 28, a committee of Federated's outside directors drew up bidding procedures in advance of a Wednesday board meeting, where Macy's and Campeau would submit their best and final offers. Campeau refused to go along with some of the restrictions.
On March 29, Joe Flom, Federated's senior Skadden lawyer, called to invite Finkelson and Wasserstein to lunch. At a midtown restaurant called Il Nido, Flom changed his tune from his usual unencouraging remark: "If you've got something to say, say it." This time, he said soothingly: "Trust me, you'll be given a fair shot."
At breakfast the next morning in the stately Stanhope hotel, Finkelson told Flom that Campeau planned to tell the board that it would raise its bid once again.
Macy's Finkelstein and Campeau's Wasserstein and Finkelson then spoke to the board, which reluctantly concluded that Campeau had a slight edge. The outside directors met separately and concurred. "There was a real bittersweet quality to the fact that everybody was saying, 'I'm disappointed that we won't see the Macy's-Federated combination. I hate to say it, but the Campeau bid is better,' " Freund said.
For the second time, victory seemed at hand, although Campeau realized that Macy's still lurked. Indeed, Macy's resurfaced Thursday morning in a last-ditch effort with a higher bid. "We felt very jerked around," one Campeau adviser said. "There were red faces and clenched jaws."
To outsiders it seemed that Macy's was willing to go to the mat to beat Campeau. But Campeau's advisers realized that Macy's was able to stay in the running only because it had "presold" most Federated assets.
Dom Perignon for All
By the afternoon of Thursday, March 31, the auction and behind-the-scenes negotiations had broken down. Advisers decided to let Campeau and Finkelstein thrash it out.
Jeff Branman of First Boston happened to be in Toronto visiting another client and was heading back to the airport to catch a plane for Sacramento so that he could surprise his mother with a Passover visit.
Ken Colburn called to say that Campeau wanted Branman to meet him at his private jet, a G-3 Gulfstream, at the Toronto airport.
Branman called his brother in San Diego to call off the Passover visit and boarded the Gulfstream for the 1 1/2-hour flight to New York. While Campeau's 16-year-old son, Jean-Paul, played guitar in the front of the plane, Branman and Campeau sat in the back hunched over a table, sipping ginger ale and nibbling sandwiches as they sorted out what divisions they might offer to sell Macy's to induce it to give up its quest for the whole company.
When the plane arrived at La Guardia about 4 p.m., Campeau sent his wife, Ilse, and family on to their home in Stuart, Fla. Branman and Campeau climbed aboard a limousine for the ride to the Waldorf. For a frustrating 20 minutes, they were incommunicado because the car phone was out of order. By the time they reached the Waldorf suite, associates were frantically trying to locate them.
Allen Finkelson, Mack Rossoff and First Boston's Ruchman converged on the Waldorf suite, and the five discussed where the meeting should be. They finally decided that, since Finkelstein had been gracious enough to suggest his townhouse at 77 E. 77th St., they should take him up on the offer.
"Going into the meeting, we weren't sure what Bob's decision would be," Branman said. "Bob makes decisions in real time."
As for Macy's, "we became increasingly convinced that Campeau wanted to win at all costs," one adviser said, "so toward the end our position was to strike the best deal we could."
Meeting Stretches On
Each man had some support. Finkelson joined Campeau. Finkelstein's crew included a longtime attorney and old friend, Ira M. Millstein of Weil Gotshal; Leon Black of Drexel; Macy's President Mark S. Handler, and Herbert M. Hellman, Macy's general counsel. The others were soon relegated to a downstairs recreation room while Finkelstein and Campeau met in the living room.
For the first few minutes, Campeau and Finkelstein chatted alone. Soon they called in Millstein and Finkelson. At times, the parties broke up to confer independently. Occasionally, as an agreement continued to elude them, someone would threaten to leave.
As the hour approached 10, Finkelson and Campeau were using a kitchen phone to call other advisers, and Finkelstein's group had retired to the basement. The two sides were using "shuttle diplomacy."
Although a basic deal had been worked out in which Campeau would sell Bullock's-Bullocks Wilshire and I. Magnin to Macy's for $1.1 billion, the two sides were still quibbling over another issue: whether Campeau would agree to cover all of Macy's $60 million in expenses from the deal.
Finally, Finkelson proposed to Millstein that Campeau pay the full amount. Millstein conferred with Finkelstein, who concurred. Finkelson then told Campeau. Campeau said, "Fine. Let's get out of here."
Finkelstein then broke out a bottle of Dom Perignon champagne, and the men clinked glasses. By 10:30 p.m., Finkelson and Campeau were out the door, and Campeau had bought the company for the third and final time.
A CAST OF CHARACTERS
Robert Campeau, chairman, Campeau Corp.
Allen Finkelson and Rob Kindler, partners in Cravath, Swaine & Moore law firm, Strategists, negotiators, legal advisers.
Bruce Wasserstein, president and chief executive, and Mack Rossoff, managing director, Wasserstein, Perella & Co. Strategists, investment bankers.
Kenneth H. Colburn, M. Jeffrey Branman, Michael B. Rothfeld, Allan B. Ruchman, First Boston Corp. Strategists, investment bankers.
Howard Goldfeder, chairman, Federated Department Stores.
J. Tomilson Hill, director of mergers and acquisitions, Shearson Lehman Hutton. Investment banker, strategist, negotiator.
THE WHITE KNIGHT
Edward S. Finkelstein, chairman, R.H. Macy & Co.
Peter D. Goodson, managing director of merchant banking, Kidder, Peabody & Co. Strategist, investment banker.
Leon D. Black, managing director of corporate finance, Drexel Burnham Lambert Inc. Strategist, investment banker.
Ira M. Millstein, senior partner, Weil, Gotshal & Manges. Legal strategist.