Cover Story

Slugging it out for No. 1

Ian Brown December 25 1978
Cover Story

Slugging it out for No. 1

Ian Brown December 25 1978

Slugging it out for No. 1

Cover Story

Ian Brown

Donald McGiverin’s soul was forged in a department store, halfway down the middle aisle between sporting goods and hardware. That is why the illusion of modesty is so complete: his is the humility of someone just getting acquainted with his own success. Ask McGiverin where he spends his spare time, and he will tell you he has a “hut in a swamp in Palgrave, Ontario,” neglecting to mention his frequent excursions to tony Lyford Cay. The act is so convincing, it’s easy, to miss the hints: amid the hecking and the jeezing, as he stalks the room to hitch his pants another inch along their journey to his armpits, one almost misses the muttered aside: “You see,” squints the rob-

in-like entrepreneur, once voted one of Toronto’s 10 sexiest men, “you gotta be big.”

In 30 of the most frantic days of his life, as Canadians everywhere embarked on the Christmas splurge that every year accounts for 25 per cent of the country’s department store business, the 54-year-old president of Canada’s oldest and fourth-largest department store retailer pulled every government and corporate string he could to buy control of rival Simpsons, Ltd. and the 41 per cent of Simpsons-Sears Ltd. that goes with it. By last week’s end, he had lost a battle in a war he promises to wage until he wins it—a war that will transform Canadian retailing from a discreet century-old family tiff into an outright corporate slugfest, and that

may force Canadians to take another look at the country’s anemic anti-monopoly laws (see box overleaf). Massive enough scope for a boy from Calgary who says “One of the great privileges of my life has been to sit in my apartment”—on the 48th floor of Toronto’s ManuLife Building, where widower McGiverin lives with his 21-year-old daughter—“and watch them build our new Toronto store.”

It is the end of a hectic year for McGiverin who was passed over for the presidency of the T. Eaton Co. in 1969 and fled to the Hudson’s Bay Co. “That was the day Eaton’s lost and The Bay won,” admits Simpsons’ President Ted Burton. This year, McGiverin and Bay Governor George Richardson have acquired 38 per cent of what is now Eaton/Bay Financial Services (insurance and trust); agreed to sell its 34.6-percent holding of Siebens Oil & Gas Ltd. to Dome Petroleum Ltd.; acquired 57.1 per cent of Zeller’s Ltd.; and consolidated its holdings in Markborough Properties Ltd. (real estate).

But the Simpsons foray is the important one, the one that could make Donald McGiverin’s name. It all started last August when Simpsons Chairman G. Allan Burton and Simpsons-Sears Chairman Jack Barrow announced their intention to merge the two companies. The move had been on their minds since Simpsons and Sears, Roebuck & Co.—the world’s largest retailer, so vast it alone accounts for two per cent of the U.S. gross national product—took over Simpsons’ catalogue division to form Simpsons-Sears, in 1952. The new company obviously had just the right formula: from sales of $112 million in its first year, it is today the country’s largest department store retailer with 62 stores, 850 catalogue outlets, 28 per cent of the market and sales of $2.1 billion, highest in the country (see chart).

But the partnership had developed some sore spots, notably over a clause that prevented both Simpsons and Simpsons-Sears from opening stores within 25 miles of already established centres without the other’s permission. Moreover, says one Simpsons director: “Let’s face it, Simpsons-Sears management is better.” Even Ted Burton, president of Simpsons and nephew of Chairman Allan Burton, admits there were difficulties: “We should have had the same people interested in both companies, but what we had were two boards, some interchange, and new kinds of conflicts.” Another Simpsons director says the problem was far more basic. Sears has been viewing its Canadian operation with some disdain as the massive U.S. operation undergoes difficult times. So, after negotiations with friend J. Ross LeMesurier, director and vicepresident at Wood Gundy Ltd., Barrow

and Burton revealed their plan—Simpsons shareholders would be given one Simpsons-Sears share for each Simpsons share they tendered in a deal worth more than $300 million.

That was all McGiverin needed. The Bay management had been looking at Simpsons as a possible take-over prospect since 1938, and so seriously in 1968 that discussions were held, then scotched when Sears said it wanted control of the new company. Fresh from another look at Simpsons only six months ago, McGiverin was lunching with Peter Wood, his executive vicepresident, and Winnipeg multimillionaire George Richardson, the Bay’s governor, the day Allan Burton made his announcement. They realized, Richardson recalls, that “if the SimpsonsSears proposal went through, it was gone forever.” To them, acquisition of Simpsons made perfect sense: it had a strong, 21-store Eastern presence to complement the Bay’s more than 100 Western stores; had been performing well (sales of $639 million, earnings of $28 million); and would round out the carriage trade end of the Bay’s mer-

chandising empire, complementing

But the Bay had to work fast-and quietly. Nov. 14, three months after Simpsons' merger plans were made public, McGiverin and Richardson called an emergency meeting of the board for Thursday evening, Nov. 16. That morning, George Richardson tele

phoned old friend Russell Harrison, chairman of the Canadian Imperial Bank of Commerce, to secure the $70 million the Bay would have to borrow for the deal.

Otherwise, total secrecy was McGiv erin's prime concern, even to the extent that working papers explaining the deal gave numbers, but no company names. Only a handful of people knew what was

going on-among them McGiverin, Richardson, Peter Wood and the Bay's deputy governor, Alex Mac Intosh, who did not attend any board meetings so he could avoid a conflict of interest: his law firm, Blake, Cassels & Graydon, had been engaged by Simp sons-Sears in the summer to work out the legal details of the merger. Friday, Nov. 17, McGiverin phoned Burton the bad news before he left the house: the Bay was making a raid, and would offer Simpsons shareholders the equivalent of $8.30 a share.

The financial community was stun ned by the news, all the more so because it had been kept a complete secret. Al lan Burton was apoplectic; Jack Barrow was mute; and competitors like Eaton's, while not commenting, were heard in the occasional private conversation to be behind the Bay, if only because the combination was less threatening than a merged Simpsons and Simpsons Sears. Most of the noise came from Rob ert Bertrand, director of the federal government's combines branch (see box) and from analysts, those strange creatures whose advice is always col ored by their own interests in a deal. In this case, McGiverin and Richardson had taken the precaution of immobiliz ing a substantial portion of the Toronto investment community by engaging (for a total of $3.4 million) Dominion Securities, Richardson Securities of Canada (another arm of Richardson's corporate wealth), Greenshields Ltd., McLeod, Young, Weir & Co. Ltd., Burns Fry Ltd. and Pemberton Securities Ltd. to solicit acceptances from Simpsons' 18,000 shareholders. The few inde pendent analysts left-Ira Gluskin, of Brown, Baldwin, Nisker Institutional

for one—considered the Bay’s offer generous, but worried about the consequences of such an intense concentration of corporate power for suppliers and shopping centre developers. Says Gluskin: “As an investment analyst, I think the merger is a lot of fun, but as a citizen I’m fairly critical. If these guys merged and then wanted to brutalize, say, the men’s pants industry, they could very easily.” John Williams, an independent Toronto retail consultant who once worked for Eaton’s, is simi-

larly fearful: “What happens if a supplier or even a manager gets blackballed by the Bay system? There’s little alternative for someone seeking a chain-store career in Canada.” To assuage such fears, McGiverin assured everyone the Bay would, if necessary, divest Simpsons’ share of SimpsonsSears at market value. Bertrand then dropped his investigation.

Meanwhile, Burton, Barrow and the other Simpsons directors met again and again, trying to come up with either a

new buyer or some other way to thwart the Bay’s offer. Monday evening, Dec. 11, after a two-hour board meeting, they hit upon the perfect solution: a brilliantly complicated financial coup that, in the opinion of most analysts, was still worth marginally less than the Bay offer—$8.17 per share vs. $8.30. But it turned over, in the form of a dividend, some 30 million Simpsons-Sears shares owned by Simpsons, thereby stripping Simpsons of $216 million worth of Simpsons-Sears assets and forcing McGiverin to withdraw his bid, which of course included the value of the Simpsons-Sears shares in its offering price. All that was subject to Foreign Investment Review Agency (FIRA), and therefore federal cabinet, approval. But FIRA had already made its decision in favor of Simpsons-Sears in secret a week and a half before, largely due to a number of promises extracted from Simpsons-Sears that included Sears, Roebuck’s agreement to reduce

its voting interest in the merged enterprise to 25 per cent within five years (even though it becomes the controlling shareholder in the new company), as well as promises to open at least 10 new department stores and create 4,000 additional jobs.

The final days in Ottawa before the cabinet’s decision last week quickly took on the air of a hucksters’ convention. While Simpsons-Sears Chairman Jqck Barrow lobbied for Simpsons, McGiverin engaged none other than Donald Macdonald, the former finance minister turned Toronto corporate lawyer, to make personal representations to old friends Warren Allmand (responsible for the anti-trust implications of the deal) and Jack Horner, minister of industry, trade and commerce

and the man to whom FIRA had reported. Telegrams demanding the Bay be stopped flooded in to Allmand’s office from small suppliers of department store merchandise. Even McGiverin got into the telecommunications act the morning of the cabinet decision when he sent each minister a telegram urging them to delay their decision. That would have guaranteed success for the Bay because Simpsons had said if there was no decision announced, the Bay’s offer would be recommended to shareholders. The cabinet meeting itself was, as one cabinet minister described it, “one of the most fiercely fought debates I’ve been party to,” with Horner squaring off for Sears against the likes of Treasury Board President Judd Buchanan and, to a lesser extent, Energy

Minister Alastair Gillespie, a declared nationalist.

But all that was hidden behind some of the most carefully chosen words of Horner’s bumptious career when he released the cabinet’s decision Thursday afternoon. Cabinet had approved the Simpsons-Sears merger. “The shareholders can do whatever they want now,” he said. “The Bay can still buy Simpsons or Sears can still buy Simpsons.” But for McGiverin, who had been in Ottawa since the night before, it meant preparing another proposal to do so. For all Horner’s ostensible evenness, the cabinet decision came down heavily in Simpsons-Sears favor. By Friday morning Simpsons’ directors had met and turned over the company’s crucial 30-million-share holding of SimpsonsSears to its shareholders.

But Donald McGiverin had a final surprise for Allan Burton. He did not withdraw his offer. Instead, he extended it by three days and ignored the stripping of the Simpsons-Sears shares: he would go after them as well. By week’s end, as Liberal MP and former minister of consumer affairs Herb Gray took his colleagues to task for allowing the Simpsons-Sears merger, analysts were again recommending the Bay’s offer to Simpsons shareholders. Even the more conservative ones had reacted against what they saw as Allan Burton’s sneaky tactics. Opined Bill Chisholm, retail analyst at Loewen, Ondatjee and McCutcheon: “I’d be surprised if they got 60 per cent of Simpsons shares with that offer, but 30 per cent is quite possible—and quite critical, as the Simpsons-Sears merger will require the approval of at least twothirds of Simpsons shareholders.” Back in his Toronto office, Donald McGiverin twisted his hands, hitched his pants a final time, and bellowed, “You’re goddamned right we’re still going after them.”