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General Cinema to Reject Offer for Carter Stock : Analysts Say Retailer's Top Shareholder May Be Waiting for Higher Price

November 27, 1986|MARTHA GROVES and BILL SING | Times Staff Writers

General Cinema, the largest stockholder in Carter Hawley Hale Stores, said Wednesday that it won't accept a $55-a-share takeover bid by a partnership for the Los Angeles-based retailer.

"General Cinema has no intention of accepting such a proposal if it is, in fact, made," said Richard A. Smith, the company's chairman and chief executive.

Although General Cinema's statement appeared to be a vote of confidence for Carter Hawley management, Wall Street analysts saw it differently. As they scurried home for the Thanksgiving holiday, the belief was widespread that General Cinema--the nation's largest theater operator--might be holding out for a better offer.

On the table is a $1.77-billion bid made public Tuesday by a partnership including the Limited, which lost a drawn-out battle for the Los Angeles-based retailer in 1984, and developer Edward J. DeBartolo Sr. The Limited's initial effort 2 1/2 years ago was thwarted when General Cinema rode to Carter Hawley's rescue by buying a large stake.

The Limited and DeBartolo, under a venture called Retail Partners, said they intend Monday to begin a tender offer for at least two-thirds of Carter Hawley's 32.1 million common shares. General Cinema with a 38.6% stake is therefore pivotal in deciding whether Carter Hawley, parent company of the Broadway, Neiman-Marcus and Bergdorf Goodman, can remain independent.

Daylong Meetings

Meanwhile, Carter Hawley said only that General Cinema's release "speaks for itself." Chairman Philip M. Hawley, back in his Los Angeles office after several days in New York, was reportedly making preparations for a board meeting but also working on day-to-day details of running the business. He was not available for comment.

Executives for the Limited, a Columbus, Ohio, company that operates more than 2,500 specialty apparel stores, were said to be in meetings most of the day before Chairman Leslie H. Wexner and Vice Chairman Robert H. Morosky headed for a brief stay in Florida. They could not be reached.

With Carter Hawley silent about how it might respond, attention focused on General Cinema and its terse statement Wednesday morning.

"In effect, General Cinema is opening the door to discussions with the Limited-DeBartolo group regarding a proper price for their shares," said Robert F. Buchanan, an analyst with Dillon, Read & Co., an investment house in New York.

General Cinema "has leverage with 38% of the company," said a portfolio manager for a major institutional shareholder of General Cinema. Implicit in General Cinema's statement rejecting the $55-per-share offer "is that they might accept a bid $10 higher," the portfolio manager said.

"I'd be very disappointed in Dick Smith as a poker player if he accepted the first bid," said Harry E. Wells III, director of research for Adams, Harkness & Hill, a Boston-based brokerage. "If somebody bids, it means the company's in play, and that could attract other bidders."

"The ball's in Limited and DeBartolo's court" to make a higher offer, said Tim Horton, with the Atlanta-based brokerage of Robinson-Humphrey Co.

Analysts noted, however, that Limited-DeBartolo has some leverage, too. If General Cinema wants to take advantage of the current 20% maximum capital gains tax before it rises to 28% after year-end, it will have to sell its stock by Dec. 31.

If sold for $55 per common share before year-end, General Cinema's stake would provide about $600 million in cash after taxes, thus doubling the $300-million investment made in 1984.

General Cinema's Smith might want to use any cash proceeds to fulfill a goal he has had for years: to add a third operating business to the company's soft-drink bottling business and theater chain.

That search for a third leg prompted General Cinema to make its Carter Hawley investment in the first place. General Cinema agreed to buy the stake after the retailer granted it an option to acquire Carter Hawley's Waldenbooks division. But after further analysis, General Cinema backed off and Waldenbooks was instead sold to K mart for $295 million.

General Cinema, based in Chestnut Hill, Mass., operates about 1,165 motion picture screens in 37 states, including California. It also is the nation's largest independent Pepsi-Cola bottler and a major bottler of Dr Pepper, Seven-Up and Sunkist products.

Even if Carter Hawley succumbs this time around, analysts said, the company should feel vindicated about opposing the 1984 takeover bid, which was valued at about $1.1 billion. "This is a much more attractive price," said Bernard Sosnick, analyst with L. F. Rothschild, Unterberg, Towbin in New York. "So shareholders can definitely feel rewarded, and (Chairman Philip M.) Hawley can clearly say with some pride that greater value has been achieved."

According to sources, Hawley had been aware for some time that DeBartolo's name had surfaced as a possible suitor. Hawley reportedly was in New York conferring with the company's investment banking house, Morgan Stanley, over the weekend.

In trading Wednesday on the New York Stock Exchange, Carter Hawley shares rose $1 to $51.50, the Limited climbed 62 1/2 cents to $33.125, and General Cinema increased 50 cents to $47.625.

In a related development, the Standard & Poor's credit-rating agency said it has placed about $475 million in Carter Hawley debt on its creditwatch list, with the possibility of downgrading the rating. If the takeover went through, the agency said, the retailer's "cash flow would be diverted to service any debt financing for this transaction, lowering protection for current debt holders." Profit Theaters 25% Beverages 72% Other 3% Revenue Theaters 35% Beverages 62% Other 3% Source: Standard & Poor's

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