In a deal that would erase the venerable Broadway name from the Southern California retail landscape and likely trigger store closures and layoffs, long-struggling Broadway Stores Inc. agreed Monday to be acquired by Federated Department Stores.
If the merger is approved by regulators, Cincinnati-based Federated said it hopes to sell some stores and will convert the remaining Broadway Stores sites--which include The Broadway, Emporium and Weinstocks--into Bullock's, Macy's and Bloomingdale's.
In addition to possible job losses at stores, the deal threatens employees at Broadway Stores' 2,000-person headquarters in Los Angeles--which faces consolidation by the new owners--and creates uncertainty for the company's local suppliers.
It would make Federated by far the biggest traditional department store chain in California, ahead of Robinsons-May and Nordstrom, and strengthen its position in a national retailing scene that has come to be dominated by discount chains such as Wal-Mart, Target and Kmart.
Industry analysts valued the stock swap at $373.3 million. In addition, Federated would assume Broadway Stores debt of $1.3 billion.
The transaction--completed as vendors cut off shipments to Broadway stores and bankruptcy rumors engulfed the company--ends a long and tortuous odyssey for Broadway Stores and could remake the intensely competitive retail landscape in California.
Broadway Stores, which emerged from bankruptcy in 1992, was trying to rebuild a franchise that was once synonymous with the Southern California lifestyle. However, like the region's economy, the Los Angeles-based company continued to struggle in a market that had too many department stores.
Last week, vendors halted shipments of merchandise to the chain and financiers withheld credit amid rumors that the company was headed back into bankruptcy. The company's stock price, which hit $77 in the late 1980s, tumbled to the $1 range.
Under the agreement, Federated will provide guarantees to Broadway Stores' lenders--financial backing that will enable the retailer to order and pay for merchandise while the merger is completed, said Broadway Stores Chairman Sam Zell.
The deal is subject to shareholder approval. But such approval is a fait accompli because Zell, a Chicago real estate magnate who acquired control as part of the bankruptcy settlement in 1992, owns 54% of Broadway stock.
"It's a fabulous deal for us, a fabulous deal for Federated . . . and it's a win for consumers," Zell said. "I have great affinity for Mark Twain and reports of my demise were greatly exaggerated."
Zell said Federated and Broadway Stores began to discuss the possibility of a deal about four months ago. "It was one of the best-kept secrets in creation," Zell said.
Broadway Stores operates 52 stores under The Broadway name--41 of them in California and the rest in Nevada, Arizona, New Mexico and Colorado. The company also operates 21 Emporium and eight Weinstocks stores in Northern California. Broadway Stores also operates a Weinstocks store in Nevada.
Federated operates Bullock's stores in Southern California and Macy's stores in Northern California. Federated also has had plans to open Bloomingdale's stores in California. The deal with Broadway Stores would allow Federated to quickly establish and expand Bloomingdale's in California by converting Broadway Stores.
Orange County is home to six Broadway stores, and Bullock's is located in four county malls. Only Fashion Island in Newport Beach contains both stores, although Crystal Court in Costa Mesa has a Broadway while nearby South Coast Plaza is home to Bullock's and Bullock's Men's Store.
The new owner will probably close some of the poorly performing Broadway Stores, although it did not specify which ones will be targeted. It also is not known how many jobs might be eliminated. The deal is expected to be completed by mid- to late October.
In a statement, Federated said it anticipates retaining and operating a "significant number of the stores" acquired in the agreement.
"There are few deals too good to pass up because of what they can mean to a company strategically over the longer term," said Federated Chairman Allen Questrom. "Because this merger will enable us to broaden our base of store operations in this important area of the country, we think this is one of those deals for Federated."
The deal is an astute move by both sides, said Thomas Friedberg, an analyst with the Genesis Merchant Group Securities, an investment banking firm in San Francisco. For Federated, he said, the acquisition is a preemptive move to keep its major rival, St. Louis-based May Department Stores, out of the Bay Area, which analysts believe May has long wanted to enter.
He said Broadway Stores, on the other hand, "hung on for a decent deal," fetching a price that reflected the value of its attractive real estate holdings.
Friedberg said Federated's Bullock's and Macy's chains combined are the biggest full-price department store operation in California, with annual sales of $2.2 billion. Next, he said, comes the combined $1.8 billion to $1.9 billion in sales by the Broadway chain in Southern California and its sister Northern California operations, Emporium and Weinstocks.
Next in the rankings, he said, are Robinsons-May at $1.5 billion and Nordstrom at $800 million.
While the planned acquisition will eliminate a major retail player, California will continue to have one of the most competitive retail environments in the country, said Kurt Barnard, a New Jersey-based retail economist.
"It will be intense because Federated will offer quality products at affordable prices and the competition will have to respond," Barnard said.
Federated will take a year or more to sell whatever stores it decides to divest, said Federated spokeswoman Carol Sanger.
The stores more likely to be closed or sold are Broadway, Emporium and Weinstocks locations in malls that already have a Bullock's or Macy's store, Sanger said. However, she said, in some locations the company may keep both open--one as a home furnishings store and the other an apparel store.
The prospects for selling stores to other retailers were unclear. Analysts say one reason for Broadway Stores' troubles was a surplus of retail space in Southern California. On the other hand, such retailers as Arkansas-based Dillard Department Stores are known to be interested in moving into the region and may see this as an opportunity.
Sanger said the company expects such sales will resolve any objections antitrust regulators may raise about overlap between the Federated and Broadway chains in Northern California and Southern California, where there are 19 Bullock's stores.
The stores Federated acquires in Southern California would become Bullock's or Bloomingdale's. In Northern California, the stores would become either Macy's or Bloomingdale's.
The Broadway chain is a Southern California fixture dating back to 1896, when a British-born merchant named Arthur Letts opened the Broadway Department Store in a 40-by-100-foot building at 4th Street and Broadway, then on the outskirts of Los Angeles.
During the boom years after World War II, under company President Edward W. Carter, Broadway blossomed as a pioneering suburban department store chain. By the late 1970s, the company had burgeoned into the nation's sixth-largest retailing operation--the only retailing giant based in Los Angeles--with a far-flung network of department and specialty stores in the United States and Canada that included prestigious Neiman Marcus. It later sold the Neiman Marcus chain.
By the late 1980s, however, the company--then known as Carter Hawley Hale--became a takeover target. And after spending more than $1 billion in a reorganization to repulse a 1986 takeover offer from the chairman of The Limited retail chain, the company never recovered.
In 1991, debt-burdened Carter Hawley sought Chapter 11 Bankruptcy Court protection in one of the largest corporate bankruptcies ever in California. The company emerged from bankruptcy in mid-1992, after Chicago investor Sam Zell acquired majority ownership by assuming one-third of the firm's debt and pumping in $50 million in capital.
A flurry of activity followed, including the naming of David Dworkin as chief executive, replacing longtime CEO Philip M. Hawley. Also, the company was renamed Broadway Stores. And, early this year, Broadway said it returned to profitability, earning $11.9 million in its pivotal fourth quarter.
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