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Allied Stores Agrees to Merge With Campeau : Retailer Pressured by Canadian Developer's Large Stock Purchases

November 03, 1986|From Times Staff Writers

NEW YORK — Campeau Corp. which had attempted a hostile takeover of Allied Stores Corp., has reached agreement to merge with the retail giant, it was announced Sunday.

The agreement was reached after Campeau consented to allow Allied management to continue in office for at least three years and to ask Allied directors to join the Campeau board of directors.

Campeau, which holds slightly more than 50% of Allied's stock, will pay $69 a share in cash and securities for the balance of the stock, or about $1.78 billion.

Allied Stores had a merger agreement early last month with a company formed by Edward J. DeBartolo Corp., the world's largest shopping center developer, and Sacramento investor Paul Bilzerian. The merger would have been for $67 per share in cash.

Will Maintain Certain Agreements

Wall Street sources said it seemed Allied agreed to begin talks with Campeau for fear that it might lose a court case that sought to block a takeover by Campeau, which had already accumulated a controlling block of shares.

Under the settlement announced Sunday, Campeau will buy the company but DeBartolo, which is headquartered in Youngstown, Ohio, will maintain agreements that give it a relationship with Campeau in future shopping mall developments and rights of first refusal on certain Allied operations and properties.

"It really worked out to be a friendly deal for everyone," one source close to the negotiations said of the outcome.

Wall Street sources said that while Allied is expected to remain intact some Allied assets probably will be sold to finance the transaction.

Allied Stores, which owns 17 department stores, including Bonwit Teller, and seven specialty store chains, including Brooks Bros. and Ann Taylor, will maintain its employment agreements and headquarters in New York City.

Campeau, headquartered in Toronto, is a shopping center and office building developer.

Allied Chairman Thomas M. Macioce will become chairman of the combined company and Robert Campeau, the majority shareholder, will be chief executive officer.

Macioce said, "We will not face the problem of a new management coming in." In a telephone interview, he called that part of the agreement "a real plus," adding, "We'll be in a position to continue what our program has been, to continue to expand our specialty store business."

Efforts to settle the battle for control of Allied, which had become a heated legal dispute, began late Thursday when Allied officials met with Campeau officials.

Allied Stores had challenged Campeau's purchase of 25.8-million Allied shares through Los Angeles-based Jefferies & Co. shortly after Campeau had dropped a tender offer for Allied Stores on Oct. 24.

Filed Its Own Suit

Campeau, meanwhile, filed its own suit against Allied for constructing a "poison pill" defense, which would have made it more expensive to carry out the takeover of Allied.

Campeau put pressure on Allied by making the large purchase of Allied stock through Jefferies.

All litigation involving the takeover battle has been dropped in U.S. District Court in Manhattan and the Delaware Chancery Court.

Allied and Campeau said Sunday that Allied shareholders will be given the choice of either accepting a unit consisting of $44 cash and a $25 senior note at an increasing interest rate, or a combination of cash and security to be designed by Campeau within the next few weeks.

The second option is expected to include preferred stock and equity purchase rights entitling holders to purchase shares of Campeau.

If the merger is not completed by January 31, the cash portion of the deal would be increased by an amount equal to interest from that date of 11.5% per year on $69.

DeBartolo and Bilzerian agreed to terminate their tender and will receive fees and expenses due under their agreement with Allied, including a $53-million termination fee.

Campeau has challenged that agreement in court but there has been no outcome yet in that case.

An agreement was also made with DeBartolo under which the company will be involved on an ongoing basis in the implementation of Allied's participation in new shopping centers as both consultant and joint venture partners.

"Over 10% of Allied Stores are located in DeBartolo properties. We're pleased the merger will not only preserve and enhance our relationship with Allied, but expand the relationship," said Edward J. DeBartolo.

$950-Million Credit Line

Merger experts said a bridge loan by First Boston of $1.8 billion to fund Campeau's more than $1.7 billion purchase of Allied stock was a sign that brokerage firms may be more willing to use their own financial muscle to back hostile takeovers.

Campeau is paying for the 25.8-million shares with $840 million from First Boston and a credit line of $950 million from Citibank.

Campeau had total assets as of Dec. 31, 1985 of $1.72 billion. Its net cash flow for the first half of 1986 was $48.4 million.

Allied had earnings of $159 million on revenue of $4.1 billion for the year ended Feb. 1, 1986. Allied has 665 stores in 46 states, Washington, D.C., and Japan. The company also owns five regional shopping centers in the United States.

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