Business

Breaking up is hard to do

The legendary Eaton’s name may be sold to the highest bidder and may even disappear

Kimberley Noble May 31 1999
Business

Breaking up is hard to do

The legendary Eaton’s name may be sold to the highest bidder and may even disappear

Kimberley Noble May 31 1999

Breaking up is hard to do

The legendary Eaton’s name may be sold to the highest bidder and may even disappear

Business

Kimberley Noble

Fredrik D’Arcy Eaton, 36-year-old son of Fredrik Eaton and great-great grandson of Eatons founder Timothy, is in an awkward spot. Fred Jr., as he is known, is acutely aware of the role his family’s ancestral retailing empire plays in Canadian history. And he realizes that, however much it has been anticipated, the announcement that his father and uncles are prepared to entertain offers for their controlling block in T. Eaton Co. Ltd. still comes as a shock—and that shoppers and longtime employees would like to know how family members feel. “You want to know what it’s like, as an Eaton,” he says, “to be selling the company that built the country.” While Fred Jr., who runs the family’s $30-million charitable foundation, will talk to Macleans, he makes it clear that he is not speaking for the whole clan. On May 18, the retailer announced its chain of stores was at long last officially for sale and that the family would dispose of the asset that made “Eaton” a household name for 130 years. Frankly, Fred Eaton Jr. finds it hard to know what to say for himself: it’s as if the whole thing were unfolding from a great distance. “I was aware that this kind of thing could happen,” he says. “Was I surprised? By the timing, yes. But,” he hastens to add, “Em not a shareholder. The only thing that connects me to the department store is my name.”

Eaton’s is controlled by Fred Eaton Sr. and his three brothers: the jet-setter and Progressive Conservative fund-raiser John Craig Eaton, 62; Fred, 61, who was Canada’s high commissioner to the United Kingdom from 1991 until 1994; Thor, 57, the “shy” Eaton who breeds racehorses; and George, 55, the onetime professional race-car driver who was Eaton’s president from 1988 until the company filed for bankruptcy

protection in February, 1997. Thanks to the Eaton’s pension surplus, half of which was used to pay off creditors, the family emerged from court protection and a subsequent public financing holding 54 per cent of the new company’s stock. Family friends say that, despite their public silence and the emotional buffers the entire Eaton family seems to have erected to deal with the eventuality of the sale, the brothers are all deeply upset by the decision. “I think they’re all sad with the way things have happened,” says CTV Television Network Ltd. chairman Douglas Bassett, a longtime friend of the family. “How could they not be?” At this point, they may get another big chunk of money out, but they will still go down in history as the generation who squandered Timothy Eaton’s glorious franchise.

Meanwhile, last week’s news that the Eaton’s board and the family have both

hired investment bankers (ScotiaMcLeod Inc. and N. M. Rothschild & Sons Canada Ltd., respectively) to help them line up potential partners or buyers raised as many questions as it answered about what exactly is going on inside the money-losing retailer. Management said it hired the investment bankers after receiving “expressions of interest” from a “number of parties.” But it did not offer any clues as to who these parties were or what they wanted to acquire.

It is difficult to determine whether the company has a prayer of being sold in one piece, or to what extent it can be sold off piecemeal. The landmark Toronto, Montreal, Vancouver and successful suburban stores could be parcelled off to a big U.S. retail chain, for example, while the rest are divided up between Bi-Way Stores Ltd. and Sears Canada Inc. As for the Eaton brothers, it remains to be seen whether all four

will agree to sell their shares when the time comes, as they stand to get only a fraction of the $350 million hired turnaround experts had led the family to expect last year. Finally, there is the big question—whether the Eaton’s brand name will continue to exist at all.

For the moment, nobody has the answers, and the exact state of Eaton’s finances is a mystery. Investors have not received any financial information since March, when Eaton’s released unaudited 1998 results showing the company had lost $72 million on sales of $1.6 billion in the year that ended on Jan. 31. The company’s annual report— with audited financial statements—has been delayed, and the annual meeting postponed until June 29.

There are other signs of trouble, particularly the restiveness among suppliers. A few of the firms that sell accountsreceivable insurance have refused to cover products shipped to Eaton’s. The retailer is said to be asking some of its most important suppliers of cosmetics and high-fashion merchandise to wait a few more weeks for their money. Last week, Eaton’s chairman and chief executive Brent Ballantyne said the company was negotiating with GE Capital Canada Inc., its major lender, to increase the amount of money available under its $250-million line of credit— indicating that stores are not selling their inventory quickly enough to satisfy creditors. As well, the stock price, which had climbed back to above $4

from a March low of $ 1.90, lost ground last week in response to all the negative pronouncements, closing at $3.36.

The list of potential buyers is varied, ranging from Federated Department Stores Inc. of Cincinnati, which owns Bloomingdale’s, to Sears Canada, to a large Boston-based liquidation outfit that has been doing its best to persuade Eaton’s competitors to join forces and make the board of directors an offer it cannot refuse. Sadly, Eatons appears to be worth more dead than alive; the breakup value of the inventory alone could equal three to four times the current price of shares, one competitor says. The potential acquisitors will only say they could be interested in certain assets, if the price were right. But the prevailing view among retail and investment analysts is that there is no chance of finding one buyer for all 64 Eaton stores. “I think the outcome is self-evident,” says an Eatons insider. “There will be a lot of breaking up. It’s not going to be a happy tale.”

On the brighter side, Canadian fashion manufacturer Peter Nygard, one of Eaton’s largest suppliers, says he has seen last month’s private audit of the retailer’s finances and is satisfied. “They have that part of their house in order,” Nygard says. “We are still moving a lot of goods through Eaton’s, and they are paying all their bills.” At this point, however, that is not enough to ensure that anything of the original company will be left when the dust settles—perhaps not even that historic name. “I would think that if you were Bloomie’s, and you bought stores in Canada, you would want your name on them,” says one recently departed Eaton’s executive. “You would want that draw. Also, I’m not sure the Eaton’s name stands for what it used to any more, it’s been so eroded.”

Nygard, ever the optimist, disagrees. “The Eaton name is one of the best in Canada,” he says. “This was a very good retailer once, and I believe that in the hands of real merchants, it will be a very good retailer again.” In the next few weeks, the value of that once-prized name may face its ultimate test. E3