Federated Acts to Protect Ralphs Against Seizure

The parent of Ralphs Grocery Co. sought bankruptcy court protection Friday in a move partly designed to fortify the supermarket chain’s defenses against being seized by an Ohio real estate developer.

The bankruptcy case was filed by Federated Stores Inc., a holding company that since January has directed efforts to bring Campeau Corp.’s vast department store operations out of bankruptcy. Company officials characterized the filing as a legal formality mainly intended to give Federated Stores more flexibility in overhauling the department store chains.

But another benefit of the move, company officials said, is that it throws an extra legal obstacle in the way of any possible effort by Ohio-based developer Edward J. DeBartolo to take control of Ralphs, the only Federated Stores operation in Southern California. Company officials and analysts have termed the prospect of such a seizure remote, but they said the bankruptcy filing gives Ralphs yet another line of defense.

Ralphs, a relatively healthy and independently financed unit of Campeau, was not included in Friday’s bankruptcy filing in San Francisco and has not been directly involved in any other bankruptcy proceedings. Friday’s filing “has no effect on us,” said Byron Allumbaugh, chairman and chief executive of the 142-store Ralphs chain.

“We don’t need any money from the Campeau Corp. and they can’t take any money from us.”

Some investors have raised questions about Ralphs’ future, however, because 83.8% of its stock is pledged to DeBartolo as collateral for a $480-million loan made to Campeau in 1988. Partly as a result of concerns that DeBartolo could take control of Ralphs, the price of Ralphs’ junk bonds fell from about $97 per $100 of face value in mid-January to around $70 as recently as early this month.

The bonds, however, have risen in recent weeks to the low $80s on assurances from Ralphs officials and analysts who dismissed the possibility of a takeover. They said DeBartolo would not move against Ralphs because, among other reasons, a change of ownership would trigger a deferred gains tax of roughly $250 million.

Allumbaugh said Friday that DeBartolo still has given no indication that he wants to claim Ralphs. But Allumbaugh added that after April 7--which is one year to the day that the Ralphs stock was pledged to DeBartolo--the company’s legal ability to thwart a move by DeBartolo would have been somewhat weakened if Federated Stores did not go into bankruptcy.

Under federal law, the stock pledge could be voided only within one year after the agreement was made, a bankruptcy lawyer not involved in the case explained. DeBartolo could not be reached for comment.

In the news release from Cincinnati-based Federated Stores, Chairman G. William Miller focused on the greater flexibility that the filing would give his company, calling the move “a procedural step that will allow us to expedite the reorganization planning process.”

He added that by including Federated Stores in the bankruptcy proceedings, the overhaul of Campeau’s U.S. organization can be accomplished “in a consistent and logical manner, and in a way that makes the most sense for the companies and their creditors.”

An analyst with the Duff & Phelps investment firm in Chicago, Barbara Wedelstaedt, said the filing was “more a formality than anything else.”

One source explained that by putting Federated Stores into bankruptcy, the assets and liabilities of the company could be more fully taken into account in any reorganization plan submitted to a bankruptcy judge. That ability, he said, would be limited if Federated Stores remained out of bankruptcy.

In its filing in U.S. Bankruptcy Court in San Francisco, Federated Stores said it had liabilities of $1.3 billion and assets of $671 million as of Jan. 31.

The document also said Federated Stores in the last year has paid $792,879 to the Los Angeles law firm of Stutman, Treister & Glatt for work in connection with the Chapter 11 filing. Of that amount, $500,000 is being held in trust to cover future services.

Federated Stores’ department store divisions--Federated Department Stores and Allied Stores--filed for Chapter 11 bankruptcy protection from creditors on Jan. 15 under the weight of roughly $7.5 billion in debts. It was the biggest retailing bankruptcy in U.S. history.

The divisions consist of nine department store chains, including such companies as Bloomingdale’s, Burdines and the Bon Marche. Federated Stores was given authority by Campeau in mid-January to direct the restructuring of the U.S. department store organization.

Toronto-based Campeau, which continues to struggle to avert going into bankruptcy itself, on Friday said it will not pay interest due today on two debts and that it wants to defer the payments while it develops a long-term business plan of its own.

Separately, Ralphs issued a preliminary financial report indicating that its cash flow amounted to $189 million on sales of $2.56 billion in the fiscal year ended Jan. 28. A year earlier, it reported operating cash flow of $125 million on sales of $2.38 billion.

Stuart Silverstein reported from Los Angeles and Martha Groves from San Francisco.