BUSINESS/ECONOMY

Campeau’s heady shopping spree

D’ARCY JENISH April 18 1988
BUSINESS/ECONOMY

Campeau’s heady shopping spree

D’ARCY JENISH April 18 1988

Campeau’s heady shopping spree

Actress Brooke Shields was there. And so were designers Calvin Klein and Oscar de la Renta, comedian Joan Rivers, actress Jaclyn Smith and about 1,100 other guests. The occasion was Bloomingdale's annual spring promotion party, held on April 5 at its 102-year-old, nine-storey midtown Manhattan flagship store. This year's theme was "Hooray for Hollywood," but the glit terati of Hollywood were upstaged by Toronto developer and retailer Rob ert Campeau, a silver-haired 63-yearold former machinist and Sudbury, Ont., native. Five days earlier Cam peau had agreed to pay $8.2 billion for Cincinnati-based Federated De partment Stores Inc., owners of

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Bloomingdale’s, and one of the largest department-store networks in the United States. Campeau’s coup ended a 10-week takeover battle against Federated’s hostile board of directors and rival bidder R. H. Macy and Co. Inc. of New York City. After the triumph, a jubilant Campeau declared, “It’s a fantastic acquisition for us.”

By any measure, it was both a marathon takeover battle and a gigantic purchase. After opening with a bid of $59.70 per share on Jan. 25, Campeau raised his offer seven times before agreeing to pay $90.70 for each of Federated’s 88.5 million outstanding shares. During a news conference at New York City’s Waldorf Astoria Hotel on April 5, Campeau told about 150

journalists from across North America that his total costs, including all acquisition expenses and assumption of Federated’s debt, will be $10.9 billion, making it the biggest non-oil takeover in U.S. history. Campeau also declared that after he sells eight of Federated’s 15 divisions for an estimated $5.5 billion, his company can easily carry the debt resulting from the takeover. Indeed, he talked boldly of expanding the Federated operations that he intends to retain and added that he wants to introduce Bloomingdale’s, the flagship chain in the Federated portfolio, to Canada. Said Campeau: “We’re going to expand to our fullest ability.”

In a takeover that became a war of nerves and escalating bids, the three combatants—Campeau, Federated and Macy—surrounded themselves with almost 200 legal and financial advisers. And for his part, Campeau regularly spent 15 to 16 hours a day plotting strategy with his consultants. New York City lawyer Allen Finkelson, one of Campeau’s closest advisers and a director of Campeau Corp., told Maclean’s: “He understands the numbers in these deals better than anyone. He was involved in every aspect of the strategy.” Despite his intimate involvement in the 10 weeks of negotiations, since late January Campeau took time off to ski in Colorado with lawyer Finkelson, golf in Florida, attend the

Calgary Olympics for two days and travel to Germany with wife Use.

Although Campeau stunned the American financial and retail industries with a successful $4.9-billion takeover of New York City-based Allied Stores Corp. in late 1986, Federated initially treated the Campeau bid with disdain, said Finkelson. But Campeau’s relentless pursuit of his prey quickly forced the Federated board to take him seriously. Said Finkelson: “There was a recognition that we were going to be there at the end, and there was no way to avoid that.”

And the battle ended in dramatic fashion during the evening of March 31, after Macy and Campeau had spent two days trading competing bids. On the afternoon of March 30, the Federated board was prepared to accept Campeau’s all-cash offer of $91.32 per share over Macy’s cash-and-stock offer worth $91.17. The next morning the Macy board submitted a new offer combining cash and stock worth $92.72 per share. While the Federated board reviewed that offer, Macy executives and financial advisers were also trying to negotiate a deal with Campeau in order to end the escalating bidding war. When those talks broke down, Macy chairman Edward Finkelstein agreed to a personal meeting with Campeau that evening at his Manhattan townhouse.

Finkelson told Maclean's that the meeting began at 7 p.m. and, for the first half-hour, involved only Campeau and Finkelstein. He and Macy lawyer Ira Millstein waited in a downstairs recreation room, along with three other Macy executives. For the final 2 Vi» hours, Campeau and Finkelstein negotiated with the lawyers present. Finkelson said that Campeau went into the meeting with the objective of winning the takeover fight, but that the Macy executives were more interested in a settlement. When the talks ended, the Macy representatives had agreed to drop their bid. In return, Campeau had agreed to sell Macy two divisions of Federated for $1.4 billion and to cover Macy’s $74-million bill for legal and financial advice during the takeover.

Although Campeau and Macy emerged as winners, Federated now faces a fundamental shakeup as a result of the deal. The Cincinnati company owns some of the oldest and most respected department-store chains in the United States, including Brooklyn, N.Y.-based Abraham & Straus and Boston-based Filene’s, with more than 650 stores and 134,000 employees. Its revenues in 1987 exceeded $116.3 billion. But Campeau has already agreed to sell two of Federated’s 15 divisions, Filene’s and Houston-based Foley’s, to The May Department Stores Co. of St.

Louis for $1.9 billion. Another two divisions, I. Magnin of San Francisco and Los Angeles-based Bullock’s/Bullocks Wilshire, will be sold to Macy. Campeau said that he will also sell three specialty-store chains and a chain of discount department stores called Gold Circle. Campeau will also borrow $1.5 billion against the equity of Ralph’s, a Los Angeles-based supermarket chain. That would leave Federated with six department-store chains.

During his Waldorf news conference, Campeau said that the Allied and Federated chains will operate as separate divisions. He estimated his total costs in the Federated takeover at about $10.9 billion, but said that the sale of various divisions will likely cut that figure by half. Campeau added that he could reduce Federated’s debt to about $3.7 billion by selling $1.7 billion in new shares. As a result, Federated’s interest costs will be about $370 million annually. But the company will earn about $870 million in profits annually based on the results in the fourth quarter of 1987, Campeau said. And the task of making sure Campeau succeeds will fall to Allied president Robert Morosky, 46, a dominating and decisive executive.

By late last week the retail analysts at various New York City investment firms were still analysing the deal. Monroe Greenstein of New York Citybased Bear Stearns & Co. Inc. said that the ultimate success of the Federated takeover depends on how fast Campeau cuts costs and takes control of the operation. Greenstein added that Campeau’s success with the Allied deal was partly due to a booming economy and declining interest rates. Greenstein said that if such favorable conditions were to disappear, the Toronto businessman would have far more difficulty digesting Federated.

Although Campeau says that he is confident that the Federated stores will generate sufficient profits to cover debt charges, he also insisted that he will still demand improvements. His first objective will be to increase sales per square foot rather than build new stores, Campeau said. He also left open the possibility that there could be layoffs, but he avoided speculating on where or at what level jobs may be cut. Said Campeau: “You cannot survive and compete by adding jobs and jobs and jobs. We’re not a government. We have to operate within the system.”

But New York City-based retail industry consultant Kurt Barnard said that Campeau will be forced to make major organizational changes at Federated. Barnard, who is also publisher of the highly regarded monthly newsletter Barnard's Retail Marketing Report, said that Federated had become

bloated with too many layers of management and that its profits had suffered due to outmoded business procedures. Indeed, those problems made Federated vulnerable to a takeover, he said. But because Campeau is expected to streamline Federated’s cumbersome structure, Barnard says that the company will be more competitive. He added that over the past four years specialty-store sales have grown at twice the rate of department-store sales. Said Barnard: “Federated and other department stores have lost touch with their customers. The cobwebs of tradition have set in.”

After his tumultuous and triumphant leap into American retailing, Campeau could now rattle the Canadian industry by bringing Bloomingdale’s north. Several Toronto-based retail industry analysts said that concentration of ownership in Canada has resulted in lacklustre marketing. By comparison, Bloomingdale’s is the second-most-popular tourist attraction in New York City after the Statue of Liberty, and it carries everything from $12,500 dresses to $160 teapots that whistle Tea for Two. The store is also renowned for its ever-changing and spectacular displays of merchandise. Said David Marcus, vice-president of marketing at Creeds, an upscale Toronto retailer: “If Bloomingdale’s came to Canada, the competition would be good for the development of our industry.”

One senior Campeau executive said last week that the company is considering sites in Ottawa and Montreal, where Bloomingdale’s could anchor new malls. And Lome Braithwaite, president of Toronto-based Cambridge

Shopping Centres Ltd., said that he plans to call Campeau this month about a potential site in Woodbridge, an affluent bedroom community 21 km north of Toronto. Said Braithwaite:

“We would welcome Campeau with open arms.”

And that would be a fitting reception for a daring Canadian entrepreneur who rose from the factory floor in Sudbury to become a major developer and, finally, the owner of one of

America’s largest retailing empires. The youngest of seven children in a French-Canadian family, Campeau left school at age 15 after completing Grade 8 and trained as a machinist with Inco Ltd. From there he went to work in a pulp-and-paper factory near Ottawa. He got his start in the construction business by building his own home and selling it for a profit before it was finished. As a builder, he erected about 20,000 homes in the Ottawa area and an estimated 40 per cent of the office space in that city’s downtown. Campeau’s biggest setback occurred in 1980 when he attempted to take over Royal Trustco Ltd., one of Canada’s largest financial institutions, but was blocked by an alliance of Toronto businessmen. Afterward a devastated Campeau told an interviewer: “I was confused about my future. I did a lot of soul-searching.”

But with two takeover successes in the past 18 months, Campeau now appears to prefer doing business in the United States. When he met with reporters last week, he said that his home will remain in Canada. However, he added that the United States has a much more open economy with far less government interference than does Canada. But despite those differences, he said that he considers Canada and the United States as one market and that he sees himself as a North American entrepreneur rather than a citizen of either country. And after completing two gargantuan takeovers in less than 18 months, Campeau has clearly become a businessman with continental influence.

LARRY BLACK

ANN WALMSLEY

-D’ARCY JENISH with LARRY BLACK in New York City and ANN WALMSLEY in Toronto