Campeau strikes again

D’ARCY JENISH February 15 1988

Campeau strikes again

D’ARCY JENISH February 15 1988

Campeau strikes again


Armed with a Grade 8 education and an itch to get ahead in the world, Robert Campeau went to work at the age of 15. His first job—sweeping floors at an Inco Ltd. smelter in his home town of Sudbury, Ont.—paid 57 cents an hour. Now 63, and nowhere near retirement, Campeau lives in an 11,000-square-foot home in Toronto and runs a multi-billion-dollar real estate and retail empire, Campeau Corp., from offices in Toronto and Manhattan. In late 1986 Campeau stunned the Wall Street financial community with the successful $4.9-billion takeover of New York-based Allied Stores Corp., then the fourth-largest U.S. department-store chain. Now, Campeau has embarked on his boldest venture yet: a $7-billion takeover of Cincinnati, Ohio-based Federated Department Stores Inc., owners of the renowned Bloomingdale’s chain.

Should Campeau succeed, he would control one of the largest retail empires in the United States. But by the end of last week the outcome of the takeover battle was far from certain. On Wednesday, Feb. 3, Campeau offered $77.50 per share for Federated, up from his initial offer of $59.70. The revised offer was set to expire on Saturday, Feb. 6, at 5 p.m. On Friday Federated chairman Howard Goldfeder issued a statement saying that his board of directors would be willing to evaluate the $77.50 offer if Campeau can provide evidence that he has adequate financing lined up. But in a letter to Campeau, Goldfeder said that Federated “will not be coerced by the unilateral time limit you have attempted to impose.”

In late January Federated directors decided to protect the company from unwelcome takeovers by adopting two so-called poison-pill measures designed to ward off any unwanted takeovers. The company is also seeking refuge in anti-takeover legislation passed recently in Delaware, the state in which the company is incorporated. Campeau, meanwhile, retaliated with court actions against the Federated poisonpill bylaws and the Delaware takeover law.

Formed in 1929 through the amalgamation of three family-owned de-

partment stores, Federated now consists of 14 department-store and specialty-store chains. The company operates 650 stores in 36 states, employs 133,000 people and has annual sales that exceed $12.7 billion. The flagship of that vast retailing network is the 102-year-old nine-storey Bloomingdale’s store in midtown Manhattan. It ranks as one of the city’s top tourist attractions and sells everything from high-priced, exclusive lines of clothing to food delicacies and sporting goods. Federated also competes at the low end of the retail market with a chain called Gold Circle, whose 48 stores are located primarily in Ohio and the southeastern United States.

By comparison, Campeau’s retail operations are much smaller. After selling off 16 of 24 Allied divisions over the past 13 months, in order to reduce the debts it had to incur to

acquire Allied, Campeau now owns 290 stores with 32,000 employees. Merchandising revenues in the nine months ending last Sept. 30, the latest period for which figures are available, totalled $2.6 billion. Revenues from Campeau’s real estate operations totalled about $210 million during the same nine months. Despite the size of his prey, Campeau stands a good chance of winning, according to some Wall Street retail industry analysts. Said Walter Loeb, analyst with New York-based Morgan Stanley: “He has already been very successful with his Allied acquisition. This time around, Campeau is being taken more seriously.”

The Campeau campaign for Federated began on Jan. 25 when the Torontobased developer-retailer filed a purchase offering with the Securities and Exchange Commission in Washington. Campeau’s all-cash offer of $59.70 per

share was well above the trading price at the time of $45.56. Federated shares shot up by $16.67 to $62.23 the same day as investors anticipated competing bids and possibly even higher prices. Later, the share price climbed to $67.31, then slid back to the $64.77 range before closing at $71.91 on Friday after Campeau unveiled his renewed bid. Most analysts argue that Federated shares are worth about

$76.20 per share because of the company’s high-quality assets.

Although Federated directors waited until Feb. 5 before declaring their stand on the Campeau bid, they had begun defending themselves against a possible takeover in early January. At that point, rumors began circulating that New York real estate magnate Donald Trump was contemplating an assault on Federated. The company is especially vulnerable to a takeover because its 91 million shares are widely distributed. At the end of last year the company had about 21,000 shareholders. The largest single block, representing about five per cent of the shares outstanding, is held by the employee pension plan. As a result, the board passed a bylaw giving common shareholders the right to buy Federated preferred shares at a discount below the market price if an outsider were to acquire more than 15 per cent

of the common stock. Because preferred shareholders are guaranteed an annual dividend, the bylaw would increase a new owner’s financial obligations. The board also passed a bylaw stating that, in the event of a takeover, Federated shareholders would be entitled to buy shares in the acquiring company at just 50 per cent of market value.

Federated board members say that

they hope they can use the new antitakeover law that the Delaware state legislature passed to stop Campeau. Delaware Secretary of State Michael Harkins said the new law stipulates that an individual or company that acquires a firm incorporated in Delaware cannot sell pieces of the takeover target for at least three years unless it has purchased more than 85 per cent of the target company. Delaware, like roughly 22 other American states, passed an anti-takeover law after being lobbied by companies that were concerned they were vulnerable to a buy-out. An estimated 180,000 U.S. companies are incorporated in Delaware because of its favorable corporate tax rates and minimal disclosure requirements.

Last Tuesday, Feb. 2, Delaware Gov. Michael Castle signed the bill into law. On the same day, Campeau’s lawyers filed an amendment to their suit

against the Federated poison-pill bylaws in the New York federal district court asking that the Delaware law be overturned.

Delaware’s law could become a serious obstacle for Campeau because his takeover strategy is based on being able to sell off some of Federated’s divisions. In the purchase offering filed with the SEC, Campeau declared that he has considered and analysed the sale of a number of Federated divisions, including Ralph’s Supermarkets, Gold Circle, MainStreet and The Children’s Place. And William Smith, a vice-president of the New York brokerage house Smith Barney, said that Campeau might be forced to sell either Allied’s Jordan Marsh departmentstore chain or Federated’s Filene’s chain because the two combined dominated the market in the Boston area. Owning both, said Smith, might violate U.S. federal antitrust laws.

Campeau’s declared objective of selling some of Federated’s less lucrative divisions makes it clear that he is trying to duplicate the strategy that he used to absorb Allied. On Sept. 4, 1986, Campeau officially offered $80 per share for up to 80 per cent of the company’s 47 million shares. The Allied board urged its shareholders to reject the offer, brought in another bidder and fought Cam^ peau in the courts. But by Oct. 1 31, 1986, he had managed to £ capture 77 per cent of Allied I shares after paying $96 a share, 5 or a total of $4.9 billion. Over the past 13 months Campeau has sold 16 of Allied’s 24 divisions for a total of $1.5 billion. After merging two divisions, Allied retained six operating divisions, which in 1986 earned 63 per cent of total company sales and 87 per cent of profits.

Although Campeau appears to have the financial support and the expertise to wage a successful takeover battle, some retail industry analysts and even Campeau associates question the wisdom of his latest venture. Said one former director of Campeau Corp.: “I think he is a damned fool. You can make one big hit and make lots of money, but your chances of making two big hits are not very good.” The former director added that after five consecutive years of growth, the North American economy is due to slow down, which will adversely affect the retail industry.

Still, other observers say that they see a sound business strategy behind Campeau’s move into the United

States and his acquisition of retail assets. Harry Rannala, real estate analyst with Toronto-based Merrill Lynch Canada Inc., said that developer-retailer partnerships are an emerging trend in the American merchandising industry. As a retailer, Campeau can put one or more of his department-store chains into new shopping centres as anchor tenants in exchange for an ownership position in another developer’s project. As a developer, he owns a stable full of potential anchor tenants for his own shopping centres. Said Rannala: “You can’t play this game in Canada. The department stores are all controlled.”

Indeed, Campeau now seems determined to expand his company south of the border, after a long and remarkably successful career in Canada. From

his modest beginnings as a floor sweeper, Campeau became a certified machinist at Inco and eventually a supervisor at an Ottawa-area pulp and paper plant. In 1948, at age 24, he built a $5,000 home for his family but immediately sold it for $7,300. That profitable venture launched his career as a home builder, and over the next 30 years Campeau’s company erected about 20,000 homes in Ottawa. He also built an estimated 40 per cent of the office space that the federal government now occupies in Ottawa.

Besides being an ambitious businessman, Campeau is a devoted family man who is the father of six children. In 1983 Campeau moved his company to Toronto where he and his wife, Use, built a luxurious home in an exclusive area known as The Bridle Path. Fol-

lowing his successful takeover of Allied, the developer told an interviewer: “I’m not interested in status. I do this for the sense of accomplishment. I just like the challenge.”

Currently, Campeau has one major Canadian project in progress—the 68storey Bank of Nova Scotia tower in downtown Toronto. It is scheduled for completion next fall. And Campeau is continually refurbishing or expanding existing shopping centres. But having set his sights on acquiring the giant Federated Stores, the former floor sweeper is poised to become a major player in the American development and retail industries.

— D’ARCY JENISH with DAVID LINDORFF in New York City and HEATHER KNEEN in Toronto