Joseph Segal had just fashioned his next career capstone by convincing his Zeller’s Limited shareholders to sell 57 per cent of their stock to the legendary Hudson’s Bay Co. for about $75 million in stock and cash. It was a buy-out sure to thrust the Zeller’s chairman toward the top of the newly created second largest retailing empire in Canada,* yet all he really wanted to talk about were lemons. “I have lemons the size of grapefruits,” he confided, referring to the oversized citrus limon he pridefully tends behind his house on Vancouver’s Southwest Marine Drive.
Meanwhile, 2,000 miles east on the fourth floor of the Toronto headquarters of Canada’s largest corporate history lesson,
Donald McGiverin, president of the 308-year-old Hudson’s Bay Co., was also avoiding the subject of take overs. He kept rallying the conversation back to his favorite subjects—history, and the necessity of a good education.
It had been a hectic six weeks for both men that ended Oct. 3 when the Bay’s bid for Zeller’s successfully expired. Several brokers and some major institutional holders of Zeller’s stock (Royal Trust among their disgruntled ranks) found the Bay’s offer of 12-per-cent premium on the going price of Zeller’s shares a trifle stingy, particularly these days when take-over bids regularly fetch premiums of 25 per cent. Their complaints, plus Zeller’s purchase of 135,700 Bay shares prior to the offer,
incited a rumor that the Bay was taking over Zeller’s to stave off a bid on itself by Zeller’s and Bronfman-backed Cemp Investments Ltd.
In truth, McGiverin and Segal may have collaborated more than anyone suspects. Segal has been headed for a seat on the board of some major national retailer since his tiny but robust
Albertaand British Columbia-based Fields Stores Ltd. waged a four-month war to beat out an American firm for control of the ailing Zeller’s when parent W.T. Grant went bankrupt in 1976. Then Segal used Zeller’s to buy control of Fields, an inspired shuffle that gave him both a smaller share of a broader organization and a larger pile of cash. Now he has done it again, trading in his more than 1.7 million Zeller’s shares for the Bay’s greater scope. “The challenge
and the motivation come,” he explains, “not from the money, but from the conceptualizing.” Segal also picks up 431,000 Bay shares (worth $10 million), about $7 million in cash, and a seat on the board of the Bay.
This time, however, Segal approached ; Don McGiver in June through George ' Dembroski and Jim Pitblado, both executive vice-presidents at Dominion Securities Limited, to suggest a merger. About 7:00 p.m. on Aug. 2 in Winnipeg’s Hotel Fort Garry—picked because it is roughly halfway between Vancouver and Toronto—the offer was agreed to. The Bay gets a foot in the quickly growing discount chain-store business and gains from Segal’s buying and real estate expertise. (His legendary real estate deals have amassed him a second fortune that exceeds his retail riches.) In return, Zeller’s disorderly inventory controls will benefit from the Bay’s inplace computer systems and McGiverin’s unerring eye for unnecessary expense. More importantly, one of Segal’s closest friends points out; “You can’t be everything to all people, you have to cover both ends of the market.” As the Bay sells more and more white-pantsand-satin high-margin fashion to the Saturday Night Fever crowd, Zeller’s will offer discount value. “The two companies would not have been merged,” McGiverin insists, “even if we had picked up 90 per cent of the Zeller’s stock. The markets are too different.”
The lasting truth of the Zeller’s take - over, however, was to be seen wherever Joe Segal was to be found—on the Bay’s side since the beginning. Segal knew the Bay’s stock price—$23.75 at the time of the offerundervalued real estate and natural resource assets. Too, analysts say Segal had punched Zeller’s as far up as it will go on its own, leaving it little elasticity. Thus, to hit his $l-billion sales target by 1982, Segal had to avail himself of some Bay-like financial resources. Unanswered is whether the Bay can contain the visions of both Segal and McGiverin without splitting under the strain. The trouble, of course, is in imagining either man anywhere but in charge. Ian Brown
*Largest: Simpsons-Sears Limited, with annual sales of about $2 billion jumping to nearly $2.8 billion if shareholders and FIRA approve possible merger of the company with Simpsons Limited.
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