Carter Hawley Deal in Danger, Analysts Say

A Chicago-based investment fund probably must raise its offer for Carter Hawley Hale or risk being derailed in its effort to pull the West’s largest retailer out of bankruptcy, retail analysts said Tuesday.

A day earlier, a Carter Hawley creditors committee had recommended that creditors reject the Zell/Chilmark Fund’s bailout offer of $240 million.

Representatives of Zell/Chilmark, the $1-billion fund headed in part by Chicago financier Sam Zell, and attorneys for the creditors committee were mum Tuesday about continuing negotiations over the amount of the offer.

Some analysts who follow the financially ailing retailer said Monday’s announcement amounted to a strong signal that the creditors committee was seriously pursuing a bid higher than the current offer of 40 cents on the dollar.

But they were quick to point out that the latest development in the Carter Hawley Hale bankruptcy saga is but one step in a continuing dance by both sides to try to win the upper hand in negotiations and, ultimately, more money or control of claims.

Robert Kahn, a management consultant and publisher of Retailing Today newsletter, likened the negotiations to a game called “chicken, where each guy puts a tire on the white line and they drive toward each other, and if one guy moves, he’s the chicken. But if they both don’t move, then there’s two dead guys.”

Kahn warned that the creditors committee and the fund could “ultimately outsmart each other until (the proceedings) end up in a liquidation” of the retailer “and they all get less.”

The current $240-million offer, scheduled to expire next Monday, would turn Zell/Chilmark into the retailer’s largest creditor. Many analysts expect that the fund would exact a high price for coming to Carter Hawley’s aid, perhaps a majority interest in the company.

Although individual creditors are free to accept Zell/Chilmark’s offer if they wish, the committee announcement Monday that it “was not in a position to recommend the Zell/Chilmark tender offers” was thought by many analysts to have a strong influence on whether other creditors will OK the offer.

According to Carter Hawley Hale records, bondholders and trade creditors together possess more than $500 million in claims against the retailer.

If the offer dies, attorneys for the creditors committee said, creditors will receive payment on their claims after the months of legal wrangling in bankruptcy court end. But the amount may fall below the Zell/Chilmark offer. To date Zell/Chilmark is the only bidder for all or part of Carter Hawley.

Analysts such as Duff & Phelps’ Barbara Wedelstaedt said the investment fund may have to raise its bid by as much as five cents on the dollar to stay in the running.