Questions Arise From Carter Hawley Story

The article on Carter Hawley Hale “Phil Hawley’s Last Chapter” (Nov. 10) contains numerous inaccuracies and misrepresentations. These are among the most serious:

* CHH employees did not invest their pension money in the company’s stock as analyst Alan Millstein is quoted as saying. Pension benefits for CHH employees are totally separate from the stock plan, 100% funded by the company and not invested in CHH stock.

Neither employees nor public shareholders invested new money in CHH at the time of the restructuring. Each shareholder received a cash dividend, new Neiman Marcus stock and retained their stock in CHH.

Most important, to compare the $60-per-share buyout offer with the present value of CHH is totally misleading. Of the restructuring package, today Neiman Marcus is worth $13, the cash is worth $17 plus interest, and CHH is worth approximately $2, suggesting that the present value today approximates $3 plus interest against the $60 buyout offer.

What has really happened over the past four years? In September of 1987, shareholders received Neiman Marcus stock valued at $37.50, cash of $17 and CHH stock valued at $13.50, or a total value of $68--$8 higher than the Limited offer. (Additionally, CHH traded above $60 for eight months during 1987, affording shareholders an extended opportunity to receive more than the $60 offer.)

The Neiman Marcus investment has shrunk from $37.50--its value when we turned it over to General Cinema--to slightly less than $13 today. Thus, a drop of $24.50, two-thirds of the total decline in shareholder value, is attributable to the decline in Neiman Marcus shares; $11.50 is attributable to the decline of CHH. To charge CHH with the responsibility for shrinkage in the value of Neiman Marcus, which occurred under General Cinema’s management, is totally fallacious.

* Speculation about liquidating the company to realize its real estate assets is illogical. The Times and other newspapers have reported the long-term problems in office and commercial real estate, including excess space of unprecedented proportions and a lack of bank financing.

* The business plan and store modernization program we will be implementing over the next several years was developed by Phil Hawley and his management team, not Zell/Chilmark, and was the basis for their investment.

* The article states that more than $100 million will be spent over the next several years for store modernization. In the tender offer document, as well as in our interview, we stated that we intend to spend between $400 million and $500 million, all of which will be generated from internal cash flow, with the exception of the original $50 million financing from Zell/Chilmark.

* The reporter wrote: “Few analysts doubt that Zell/Chilmark will make money from its investments in CHH . . . but analysts question whether the employees or any other longstanding Carter Hawley shareholders will do as well.”

We disagree. If Zell/Chilmark ends up with common stock in the company, and employees and other longtime CHH shareholders also have common shares going forward, by definition, for Zell/Chilmark to make any money, the shares must go up in value. Any increase in the value of CHH shares will go to all shareholders. This is an obvious point to us.

* We disagree with William Fiore, head of Local 1100 of the Department Store Employees Union. There is no way that he can have an average cost of $15 for shares purchased more than a decade ago, that are worth $2 today. What he clearly has left out of his analysis is the $17-per-share cash dividend that he received, the annual dividend that was paid until 1987, the Neiman Marcus shares that he received and the company match that has been credited to his account. He and other employees have an actual cost of less than $6 and in some cases much less.

BILL DOMBROWSKI

Los Angeles

The writer is vice president, corporate affairs, at Carter Hawley Hale.