Two Campeau Chains File for Bankruptcy

Campeau Corp.’s vast department store empire, overburdened by $7.5 billion in takeover debts, came thundering down Monday in one of the biggest bankruptcy cases in U.S. history.

In court filings made in Cincinnati, Ohio, Campeau’s Federated Department Stores and Allied Stores divisions and related subsidiaries sought protection from creditors while they try to reorganize under Chapter 11 of the U.S. Bankruptcy Code.

Also, Campeau filed for protection from creditors in federal court in San Francisco for some of its holding companies and its small California real estate business. But the company’s only retail operation in Southern California, the 143-store Ralphs supermarket chain, was not included in the bankruptcy case and is considered in relatively good shape financially.

Although widely expected, the bankruptcy is the biggest in a series of jolts to ripple through the retail and apparel industries in recent months.

The fall of Allied and Federated, acquired by Toronto-based Campeau for $10.1 billion with the help of junk bonds, is also the biggest debacle involving that increasingly controversial type of takeover financing.

However, analysts and Campeau executives said the bankruptcy could help stabilize the retailing industry by giving Allied and Federated time to turn around some of their chains and to sell others in an orderly way.

In taking advantage of incentives provided under bankruptcy law, Allied and Federated got some immediate good news: approval from their banks for $700 million in fresh financing for badly needed spring merchandise. Suppliers had cut off shipments to the stores almost completely out of fear that they would not be paid.

“The stores now will have no difficulty getting merchandise in the full quantities they need,” said Kurt Barnard, publisher of Retail Marketing Report.

Lafayette, Calif.-based consultant Robert Kahn called the Chapter 11 reorganization “the one chance for the stores to survive.” On Monday, however, some apparel makers said they still had a wait-and-see attitude on whether to resume shipments to Campeau stores.

In a statement to the department store divisions’ 100,000 U.S. employees, company executives said that the Chapter 11 filing “was a difficult step for us to take.”

Campeau executives said that, under the reorganization, business will operate normally at all of the company’s 258 department stores, which include such leading chains as Bloomingdale’s, Abraham & Straus, Burdines, Jordan Marsh and The Bon Marche.

However, shoppers may notice changes at Campeau stores. Alan Millstein, publisher of Retail Fashion Report, said that the supply of merchandise is likely to be thin because lenders will want to keep a tight rein on the stores.

He predicted also that Federated and Allied managers will stop stocking their stores with some adventurous fashions to avoid taking chances on merchandise that might not sell well.

For consumers nationwide, the struggles of Campeau and some of its competitors so far have yielded a bonanza: Cash-hungry stores have cut their prices in a nearly desperate effort to drum up business, especially during the holiday shopping season.

But industry analysts said that the Allied-Federated bankruptcy would have little, if any, effect on prices because of the continuing rugged competition among retailers.

At the midtown Manhattan flagship store of Bloomingdale’s--considered the crown jewel of the Campeau retailing organization--shoppers expressed concern and some anger about the bankruptcy filing.

“It seems to be the trend in retailing, things are getting worse,” said John Iammatteo, an accountant from Queens.

Maureen Shea, a Manhattan data-processing manager, lashed out at Campeau Corp. founder and Chairman Robert Campeau and his takeover financiers. “How they could be so stupid is beyond me because they are supposed to be such financial geniuses, but they apparently couldn’t project their revenue.”

A source close to Campeau said that in coming days Allied and Federated will provide further news. He said the company will announce, among other things, that G. William Miller, a Campeau board member, will become chairman and chief executive of all of Campeau’s U.S. operations. He is a former U.S. Treasury secretary and former chairman of the Federal Reserve Board.

In addition, Ronald Tysoe, the current president of Campeau Corp. in Toronto, will become chief operating officer of the U.S. organization, which includes Federated, Allied and Ralphs. The company has also offered the chairmanship of the department store divisions to Neiman-Marcus’ top executive, Allen Questrom, but he has not yet given Campeau an answer.

Campeau became a retailing force by buying Allied for $3.5 billion in 1986 and acquiring Federated after a drawn-out takeover fight for $6.6 billion in 1988. The Campeau organization is widely expected to emerge from the bankruptcy in perhaps two years as a leaner company after unloading some of its chains, with Ralphs being a likely divestiture.

Although the Federated and Allied chains are regarded as solid operations, their earnings were not enough to pay off Campeau’s heavy acquisition debts, including $2.5 billion in high-interest junk bonds. As a result, many have pointed to Federated and Allied’s problems--and the possible impact on thousands of workers--as an example of the dangers of corporate takeovers.

“We see this as yet another warning for the high fliers in the junk bond market,” said Michael Connolly, a spokesman for Rep. Edward J. Markey (D-Mass.), chairman of the House subcommittee on telecommunications and finance.

Connolly cited a bill that Markey plans to introduce this winter to curb junk bond-financed takeovers and added: “As more of the highly leveraged buyouts find it difficult to make interest payments, we think more and more people will see the wisdom of this legislation.”

The Federated-Allied collapse is the biggest bankruptcy ever by a U.S. retailer. It appears to be the fourth-biggest bankruptcy in U.S. history, by virtue of the roughly $11 billion in assets on the books of the two department store companies.

Campeau’s chairman and founder, 66-year-old Robert Campeau, envisioned putting together a gleaming retailing empire when he began the Federated and Allied takeovers. However, Monday’s bankruptcy filing was almost anti-climactic for the one-time Ontario factory worker.

Last Thursday, Campeau suffered his biggest blow when the company’s board stripped him of his authority over U.S. retailing operations. At the same time, the board established the U.S. holdings as an independent unit of Campeau Corp., largely to qualify for Chapter 11 proceedings under U.S. bankruptcy law.

Within months after Robert Campeau toasted his Federated acquisition nearly two years ago, his plans began to unravel. The organization was hurt by softness in women’s apparel sales and the disappointing prices it received when it sold 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 Bloomingdale’s up for sale. Also, it began efforts to buy back its junk bonds at a discount to cut interest expenses, sending the junk bond market into a tailspin.

To give Campeau time to maneuver, the hugely wealthy Reichmann family of Toronto lent the company $250 million through the Reichmanns’ Olympia & York Developments real estate firm. At the same time, the Reichmanns forced Robert Campeau to give up much of his authority and excluded him from the Campeau board’s key restructuring committee.

A new squeeze soon was put on Campeau as factoring companies--financial intermediaries that finance apparel manufacturers’ shipments to retailers--began cutting off credit for goods destined for Campeau stores. Although the Campeau stores already had most of their Christmas goods by then, they have faced the prospect of half-empty shelves in the spring.

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 bankruptcy code if lenders did not 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. The banks ultimately granted the stores two extensions, but, as it turned out, it was largely to avoid the appearance of being responsible for putting Federated and Allied into bankruptcy.

The long-apparent prospect of a bankruptcy filing complicated, at times, Campeau’s efforts to turn itself around. Attempts 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. On Monday, a Campeau executive confirmed that the sale would be slowed by the bankruptcy filing.

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CAMPEAU’S U. S. RETAILERS

NEW YORK--Here is a list of the U.S. retailers owned by Campeau Corp. and the states in which their stores are situated:

Allied Stores Corp.:

Jordan Marsh--Connecticut, Maine, Massachusetts, New Hampshire, New York, Rhode Island.

Maas Brothers-Jordan Marsh--Florida, Georgia.

Stern’s--New Jersey, New York, Pennsylvania.

The Bon Marche--Idaho, Montana, Oregon, Utah, Washington, Wyoming.

Federated Department Stores Inc.:

Abraham & Straus--New Jersey, New York.

Bloomingdale’s--Connecticut, Florida, Illinois, Massachusetts, Maryland, New Jersey, New York, Pennsylvania, Texas, Virginia.

Burdines--Florida.

Lazarus--Indiana, Kentucky, Michigan, Ohio, West Virginia.

Rich’s-Goldsmith’s--Alabama, Georgia, South Carolina, Tennessee.

Ralphs Grocery Co.:

Ralphs--California. (Excluded from bankruptcy filings)

Source: Associated Press