BUSINESS/ECONOMY

Battle for a retail giant

MARK NICHOLS October 27 1986
BUSINESS/ECONOMY

Battle for a retail giant

MARK NICHOLS October 27 1986

Battle for a retail giant

BUSINESS/ECONOMY

The operation began on Aug. 1 at the New York headquarters of Allied Stores Corp., the fourth-largest operator of department stores in the United States. The unwelcome visitor in the office of Allied chairman Thomas Macioce was Robert Campeau, the flamboyant chairman of Campeau Corp., a Toronto-based real estate development company. The proposal that Campeau put to Macioce was a bold one—that the Canadian’s much smaller firm take over Allied. Macioce rejected Campeau’s offer, setting in motion a multibillion-dollar takeover battle that continues in two U.S. courtrooms this week. Directing operations

last week from a suite of rooms in Manhattan’s luxurious Waldorf-Astoria hotel, Campeau declared in an interview,

‘T came here, made up my mind to go for this company, and I am prepared for any eventuality.”

The giant Allied, which in 1985 earned a profit of $220 million (Cdn.) on revenue of $5.7 billion, operates 665 department stores across the United States, many of them in lucrative regional malls. Among its stable of stores are the upscale Brooks Brothers and Jordan Marsh chains. Campeau has offered $2.7 billion for 80

per cent of Allied’s 47 million outstanding common shares. If his bid succeeds, it would give him a spectacular entry into the competitive American retailing and shopping centres markets. Campeau told Maclean’s last week that Allied’s property, rather than its stores, is his primary objective. “What we’re interested in acquiring in the United States is retail real estate,” he said. “Through this company, we’ll have opportunities to build new shopping centres and new stores.”

Campeau’s challenge was characteristic of the 62-year-old Sudburyborn entrepreneur who has tried—and failed—to take over larger companies in the past. Allied Stores dwarfs Campeau Corp., which in 1985 earned a profit of $27.8 million on revenue of $213.5 million. Campeau owns 19 medium-sized shopping plazas across Canada, as well as numerous office buildings and business parks in both Canada and the United States. One of Campeau’s largest recent undertakings is the construction of Toronto’s $430million Scotia Plaza, with a 68-storey main building that will be the secondtallest in Canada.

In New York, Allied’s executives

have mounted a determined defence to repel the Canadian. In his first attempt to brush off Campeau, Allied’s Macioce offered to sell him five of his company’s large U.S. shopping plazas. Campeau bid $300 million for the plazas, but Allied rejected the offer as too low.

Then, on Sept. 4, Campeau made a formal offer of $80 a share. That too was spurned by Allied’s board, and Campeau increased his bid to $91 a share in cash and bonds. The bonds that Campeau plans to offer are a high-yielding, high-risk type disparagingly re-

ferred to in the investment community as “junk” bonds. In response, Allied’s board invited a takeover bid from another source. Its chosen savior was multimillionaire Edward J. DeBartolo, whose Youngstown, Ohio-based company owns 51 regional malls, making him the largest shopping centre developer in the United States. Many of Allied’s stores are located in DeBartolo’s malls. DeBartolo also owns the National Football League’s San Francisco 49ers and the Pittsburgh Penguins

of the National Hockey League.

He teamed up with Florida investor and takeover specialist Paul Bilzerian to form ASC Acquisition Corp. And on Oct. 7, ASC topped Campeau’s $91 cashand junk-bond bid with an all-cash offer of $93 per share for 100 per cent of Allied’s stock. That offer was worth $3.6 billion. Then, ASC officials stipulated that if for any reason an ASCAllied agreement ended, Allied would have to pay ASC at least $80 million in fees.

But on Oct. 10 Campeau counterattacked, effectively raising his bid to $96 per share by offering Allied shareholders a special dividend of $2 a share if his takeover succeeded and another $1 per share if the fee agreement between ASC and Allied was disallowed in court. The dividend offer—an action that investment analysts said was a new takeover tactic—apparently interested many shareholders and quickly brought Campeau close to his 80-percent goal. By the end of the day, he claimed that he had been offered 34.5 million of Allied’s shares—or 73 per cent of the total.

But then ASC struck again. Arguing in New York Federal Court that small

shareholders had not had time to adequately study Campeau’s latest offer, it obtained a 10-day restraining order preventing Campeau from accepting the shares. Allied also countered with what is known as a poison pill in takeover manoeuvres—an action designed to further increase the cost of the Campeau bid. The retailer announced that its shareholders would receive securities valued at $93 per share in the event that any unfriendly suitor bought more than 50 per cent of its shares. The new owner would then find itself with an enormous, unanticipated debt.

For his part, Campeau kept up the pressure last week by extending his offer to Oct. 24—four days beyond the expiry date of the court order. He also told Allied’s board that if it continued to resist, he would start buying shares on the open market or from arbitragers, traders who specialize in assembling large blocks of stock in the hope of profiting from takeover bids. But this week a New York court will hear a challenge from Allied on the validity of Campeau’s dividend offer. And a court in Delaware, where Allied is in-

corporated, will consider a petition by Campeau for an injunction to block the ASC offer.

Still, Campeau said that he remains confident that he will eventually win the support of Allied’s hostile board. “I still think it will finish as a friendly deal,” he told Maclean’s. And his career has demonstrated that he is capable of getting his way. Born into a French-speaking family in Sudbury, Campeau left school at 15 to train as a machinist at the city’s Inco Ltd. plant. He found his real vocation 10 years later in 1949, when he sold a house that he had built for his family in Ottawa for a $2,300 profit. Within a year Campeau had 50 houses under construction. Over the next decade, Campeau Corp. expanded rapidly as a builder of apartment and office buildings, shopping plazas and hotels in the Ottawa area.

In 1970, needing financial support for his rapid expansion, Campeau sold control of his firm to fellow Sudbury native Paul Desmarais’s Power Corp. But extra funding failed to materialize, and Campeau decided to buy his

company back. It was an expensive transaction, and to accomplish it Campeau had to borrow $27 million in Switzerland in 1972 at high interest rates. Since that setback, his sharp eye for real estate trends has spurred his company’s rapid growth.

But he has had less success with takeovers. In 1973 he lost out to the Hudson’s Bay Co. in a bid to take over Toronto-based Markborough Properties Ltd. His most bruising defeat occurred in 1980 when he tried to win control of what was then Canada’s largest trust company, Toronto-based Royal Trustco Ltd., an attempt to secure a wider financial base for his real estate empire. It would also have given Campeau, a francophone, a place in the Bay Street establishment. At one point in the five-week battle, Royal’s chairman, Kenneth White, told reporters, “I will not work for Robert Campeau.” In the end, Campeau abandoned his takeover bid after large blocks of Royal stock were bought by other interests more acceptable to the trust company.

Now, if his bid for Allied succeeds, Campeau will gain entry into the elite circle of U.S. retailers and developers. Allied is

frequently asked by developers to provide the main commercial centres in new suburban malls. Said one U.S. developer who asked not to be named: “You can ask for 10 per cent of the mall, and easily leverage yourself into an equity position in the project.”

Still, the costs involved are large for a company as relatively small as Campeau’s, and some retail analysts said that even if his bid is successful he will have to sell off parts of Allied to help pay for the acquisition. But last week Campeau refused to comment on that aspect of his plans.

In fact, he could win a significant victory even if his bid for Allied is defeated by the courts or in the marketplace. With four per cent of Allied’s stock already in his hands, Campeau stands to collect about $40 million profit if DeBartolo’s bid succeeds because of the share-price increase that it would involve. Win or lose, the venturesome Canadian would emerge as an established name in the United States—and another takeover force to be reckoned with.

MARK NICHOLS

LARRY BLACK

ANN SHORTELL