BUSINESS WATCH

The spectacular fall of a titan

Out of all the sweat and tension, gutsy developer Robert Campeau probably only enjoyed one moment of unalloyed triumph

Peter C. Newman September 25 1989
BUSINESS WATCH

The spectacular fall of a titan

Out of all the sweat and tension, gutsy developer Robert Campeau probably only enjoyed one moment of unalloyed triumph

Peter C. Newman September 25 1989

The spectacular fall of a titan

BUSINESS WATCH

PETER C. NEWMAN

Out of all the sweat and tension, gutsy developer Robert Campeau probably only enjoyed one moment of unalloyed triumph

There is a bittersweet quality about Robert Campeau’s fall from grace— the classic tragedy of a gutsy entrepreneur reaching beyond his means to grasp the social legitimacy that had always eluded him. He took on the Canadian and American business establishments, refused to play by their rules, and they turned on him.

“They’re stodgy, ridiculous and, anyway, their power is dwindling,” Campeau once complained about Canada’s business elite. Obsessed with proving himself in their jaundiced eyes, he moved his acquisitive itch south of the border and, in a $13.1-billion rampage, took over Allied and Federated, two major U.S. department store chains. In the process, he accumulated a debt load 25-per-cent larger than Dome’s, got caught in his self-generated liquidity squeeze and, last week, was forced to surrender control of his company.

His climb was as spectacular as his fall. One of 14 children of an underemployed Sudbury auto mechanic, Campeau quit school at 14 and, finding himself too young to get work, used his dead brother’s baptismal papers to get a job at Inco. He began to build houses, married his childhood sweetheart, Clauda, and moved to Ottawa where he became a successful developer. He eventually sold his company to Montreal’s Paul Desmarais, suffered his first nervous breakdown, left Clauda for his German mistress, Ilse Luebbert, and tried to hack his way into the big leagues. Campeau’s most spectacular brush with the Establishment was his aborted 1980 attempt to buy control of Royal Trust, then run by a crusty Establishment retainer named Kenneth White. “You may think that money talks,” White warned Campeau, “but I don’t like you, and I’m going to call up my friends and lock up 50 per cent of the stock before you can turn around.”

Which was exactly what he did. In an unprecedented show of solidarity, the mavens of Canada’s Establishment, led by Toronto-Dominion Bank chairman Dick Thomson and Noranda’s Alf Powis, slapped together an over-

night syndicate that bought $200 million of Royal Trust shares—at $4 below the Campeau offer—enough to hold the intruder at bay. The move against Campeau, which was based more on their dislike of the man rather than his fiscal deficiencies, grew so strong that being part of the anti-Campeau gang-up became a status symbol. Don Love, a millionaire Edmonton developer tied into the TD Bank orbit, for example, counted his acceptance into the Establishment’s inner core from the moment he was invited to participate in the keeping-Royal-Trust holy crusade. For their shoddy tactics, White and one of his senior associates had their trading privileges revoked by the Ontario Securities Commission, but Campeau had been routed.

Campeau went back to real estate promotions, mostly in the southern United States, but he never got over the massive slight he had suffered. If the Royal Trust tactics had been used in the United States, Campeau blustered, “those people who breached security laws at that time would have gone to jail, and others would have paid large fines.”

Campeau’s own family troubles became public when he separately sued his son, Jacques, and his daughter, Rachelle, to retain voting rights over the family trust he had set up in 1961 as a

tax avoidance measure. Father and son have not talked for seven years, and Campeau has never met Jacques’s wife or seen his granddaughter.

Campeau’s first major thrust into the United States was his $4.9-billion takeover of Allied Stores in 1986. That deal was done largely on debt, and to help swing it, he had to jettison some of Allied’s best assets, including Brooks Brothers, the respected New York City men’s wear store, which he sold to Britain’s Marks & Spencer for $925 million. Seventeen months later, he paid an inflated $8.2 billion for Federated Department Stores. His original offer of $59.70 per share (that would have totalled $5.4 billion) was run up to $90.70 per share by a reluctant management and competing bidders. Not only did Campeau pay too much, but he had to mortgage most of his other assets and invite the Reichmanns into his own equity position to try and keep up with his burgeoning debts. Once again he had to sell off such plum properties as the Ann Taylor women’s wear chain, the Bonwit Teller units and now Bloomingdale’s, the highly profitable day care centre for the New York rich.

As a result of all his manoeuvring, the bonds of both Federated and Allied have been placed on Moody’s B-3 category—which is just one step above their “anticipating bankruptcy” rating. The two companies lost $367.5 million in the first six months of this year, as well as having to carry the burden of interest payments totalling $389.4 million. One problem is that Campeau reneged on his pledge to Allied bond-holders that he would not use junk financing for the Federated purchase. Now, his troubles have shaken the foundations of the whole junk bond scene, which is no mean feat in a market populated by fast-buck predators.

Out of all that sweat and tension, out of having to mortgage his soul to prove to Canada’s elite just how big a deal he could pull off, Campeau probably only enjoyed one moment of unalloyed triumph. That was the night of his housewarming, or to be more precise, mansionwarming, when he invited Toronto’s Establishment to his new house on The Bridle Path, an imitation 18th-century French château, complete with dark-panelled library and the entire leather-bound works of Balzac. All the big hitters attended the party, including Conrad Black, Fred Eaton, Bill Mulholland, Don Fullerton and Ced Ritchie (then chairmen of the banks of Montreal, Commerce and Nova Scotia), Trevor Eyton, Leo Kolber—not to mention Pierre Trudeau, Bill Davis and Emmett Cardinal Carter, who formally blessed the grey-stone mammoth, including its olympicsized indoor swimming pool.

As the guests munched wild mushrooms dipped in raspberry vinegar (followed by roast suckling pig with avocado paste), they were serenaded by Paul Anka, who had dropped in with his entire Las Vegas show band—singing, naturally, My Way.

Because so many of Campeau’s properties still have solid underlying values, the Reichmanns and other creditors have moved in to rescue Robert Campeau’s tottering empire, reducing its founder to a minority position and eliminating him as a major player.

He will not be missed.