Campeau Will Split Off Its U.S. Retail Operations : Retailing: Robert Campeau will no longer be involved in running those units. A separate board will be appointed.
Campeau Corp., after staggering for months under huge takeover debts, officially stripped the company’s founder of most of his power and disclosed a major overhaul late Thursday to rescue its vast U.S. department store chains from near-collapse.
The move was another in a series of shattering personal blows to Robert Campeau, 66, a one-time factory hand and home builder who dreamed of running a glamorous retailing empire. He will continue to develop and manage real estate holdings but will have no authority over the company’s expansive U.S. operations, according to a statement from the company.
Campeau Corp. was widely expected to seek bankruptcy court protection for its troubled department store divisions. But at least for now, officials said they would put the U.S. stores into a trust insulated from the Toronto-based parent company.
The company’s announcement was the biggest surprise in a series of developments to roil the the U.S. retail and apparel industries in recent months. Over much of the country, Campeau is a major power in retailing with such prominent chains as Bloomingdale’s, Abraham & Strauss, Burdines, Jordan Marsh and the Bon Marche.
Campeau’s 258 department stores account for an estimated 3% of the nation’s general merchandise sales, and they comprise the second-largest U.S. department store organization in the United States.
In Southern California, however, Campeau’s only retail business is the 143-store Ralphs supermarkets chain. That Compton-based business is independent of Federated and Allied and is considered in good financial shape.
Campeau became a retailing force by buying Allied Stores for $3.4 billion in 1986 and acquiring Federated Department Stores for $6.6 billion after a drawn-out takeover battle in 1988. Analysts have said most of the Federated and Allied chains are solid stores and would thrive if their takeover debts were retired.
“You took good companies and you got into a Wall Street bidding war that burdened them with too much debt,” explained Geoffrey D. Lurie, president of G.D.L. Management Inc., a corporate turnaround consultant in New York.
Prospects for Campeau’s U.S. operations have appeared bleak at least since September. At that time, crushing interest expenses from takeover debts forced Campeau to seek an 11th-hour bailout loan of $250 million from the secretive and hugely wealthy Reichmann brothers, owners of Toronto-based Olympia & York Developments. As part of the deal, Robert Campeau was forced to relinquish some of his managerial authority, but his exact role had been somewhat unclear.
Despite the September deal, suppliers began curtailing shipments to Campeau department stores at the urging of credit managers who were concerned about the ability of the stores to pay bills. In recent weeks, the supply problem edged toward a crisis, threatening to leave the stores with half-empty shelves this spring.
Many apparel manufacturing executives have urged Campeau to seek Chapter 11 bankruptcy protection, a maneuver that helps beleaguered businesses get fresh credit for new merchandise. Instead, however, Campeau apparently is trying to restore the confidence of lenders and suppliers with a thorough reorganization not requiring a bankruptcy.
Under the setup, Robert Campeau would be separated from his company’s U.S. operations by several layers of authority. “He has no involvement whatsoever with the U.S. companies,” Byron Allumbaugh, chairman of Ralphs and currently a member of the Campeau board, said in a telephone interview after returning to Los Angeles.
First, a group of independent trustees will be appointed to represent Campeau and other shareholders.
After that, a new board--composed mostly of outside directors--would be created to direct the Campeau U.S. operations. In addition, the company will add three key executives to manage the enterprise: a chief executive, a chief operating officer and a chairman of the department store operations.
The top management of Campeau’s U.S. organization also will include Allumbaugh, who will continue to head the Ralphs division, and Chance Bahadur, who was named Wednesday to assume the duties of chief financial officer for the U.S. operations.
Allumbaugh said Campeau is close to naming the new directors and executives, a group that he promised would be headed by a “very prominent person.”
He gave few details about the four days of lengthy board meetings that led to Thursday’s announcement.
Allumbaugh said, however, that the fiery Robert Campeau gave up much of his authority willingly. “His feeling was that if he was a detriment to the company’s U.S. interests, he would bow out.”
The Ralphs chairman said that there would be further announcements from Campeau in coming days but that they would mainly “fill in the gaps” left in Thursday’s disclosures, including the names of new company officials.
Analysts have predicted that the Campeau organization would eventually emerge from a bankruptcy or another form of reorganization by selling Ralphs and some of its prestigious department store chains.
Campeau “is going to go on,” said Michael Gould, president of Giorgio Beverly Hills, which supplies fragrances to the company’s department stores. “It’s just going to be run by different people.”
Within months after Robert Campeau toasted his Federated acquisition, his plans began to unravel. The organization was hurt by softness in women’s apparel sales and the disappointing purchase prices it collected upon selling its Ann Taylor and Gold Circle chains.
Meanwhile, beset by high expenses and lackluster sales, the company burned up its working capital. Last September, Campeau Corp. moved to stave off disaster by putting up for sale its crown jewel, Bloomingdale’s. It also launched efforts to buy back its $2.4 billion in junk bond debt at a discount to cut interest expenses, sending the junk bond market into a tailspin.
On Dec. 12, Allied and Federated warned in a filing with the Securities and Exchange Commission that they might have to file for protection from creditors under Chapter 11 of the U.S. Bankruptcy Code if lenders didn’t reschedule their debt.
Prospects looked even worse 10 days later when a syndicate led by New York’s Citibank threatened to call in its $2.34 billion in loans if Federated and Allied did not demonstrate their solvency by this Monday. There was no indication whether Thursday’s announcement would satisfy the banks.
The long-apparent prospect of a bankruptcy filing complicated, at times, Campeau’s efforts to turn itself around. Efforts to sell the glitzy, 17-store Bloomingdale’s chain were hindered, sources said, by concerns among would-be buyers that a deal might eventually be voided or altered by a bankruptcy judge.
Bloomingdale’s attracted interest from about a half-dozen parties, including groups led by Marvin Traub, chairman of Bloomingdale’s, and Joseph E. Brooks, chairman of the Ann Taylor chain. Others who expressed interest included real estate developer Donald Trump, along with JMB Realty Corp., a big Chicago-based real estate syndicator, and Japan’s TokyuCQ Department Store Co.
But sources said that all of the offers were less than $1 billion, far below the purchase price of more than $1.2 billion sought by Campeau.
Campeau negotiators also tried, unsuccessfully, to use the threat of bankruptcy as a cudgel to win concessions from holders of its junk bond debt. The company tried to buy back the bonds at a sharp discount, in part by raising the probability that bond holders would suffer even more if they waited months or perhaps years for a bankruptcy judge to rule on the matter.
All the while, the question of who was steering Campeau has been in question. The Reichmann brothers appeared to become the most influential shareholders. By virtue of providing the $250 million in financing in September, they acquired or gained the right to acquire 38.4% of the company’s stock.
The National Bank of Canada, however, emerged with the equivalent a 22.5% stake this month when it seized about half of Robert Campeau’s holdings when two of his personal companies defaulted on loans. Meanwhile, Campeau continued to hold a 20.7% stake.
Edward J. DeBartolo Sr., an Ohio shopping mall developer who helped Campeau buy Federated, also played a role as a key creditor and holder of a 7.5% in the Federated unit itself.
