When Carter Hawley Hale Stores ventured into the rarefied atmosphere of luxury specialty stores by buying Neiman-Marcus and Bergdorf Goodman in the late 1960s and early 1970s, industry analysts warned that those volatile fashion businesses might impair profit growth.
The tables turned, however, and in recent years it was department stores--the company's core business--that slid in Wall Street's estimation as the specialty stores shone. But Philip M. Hawley, chairman of the Los Angeles-based retailer, insists that department stores have gotten a bum rap.
"Department stores are sleeping giants, not anachronisms," he said Tuesday in an interview at the company's downtown headquarters. "They're perhaps the biggest sleeping giant on the American business scene."
His loyalties, he said, lie with department stores, and that helps put into perspective the bombshell that he dropped Monday after Carter Hawley's board rejected a hostile, $1.93-billion takeover bid by the Limited and Edward J. DeBartolo Corp. Under a restructuring plan to be put to shareholders, Carter Hawley--with Hawley at the helm--will retain its five department store units (notably the Broadway). The specialty divisions will be spun off to shareholders with General Cinema, its largest stockholder, in control of the new company.
Appearing relaxed on the morning after, Hawley talked of how the restructuring was devised and why it will benefit shareholders, sprinkling his remarks with short-hand jargon to distinguish the two companies that will emerge--"D" Co. (for department stores) and "S" Co. (for specialty stores).
First, he sought to lay to rest the notion that savvy General Cinema pressured the company into reorganizing.
"They put no pressure on us to restructure and didn't ask that we restructure," Hawley said. "This was generated by ourselves, by the management of the company.
"It was something I wanted to do--absolutely. I've been conceptualizing about this since the early part of this year. . . . I have been on this road mentally for well over a year as the next evolutionary step.
"The shareholders aren't giving anything up in the plan we put together," he continued. "The shareholders' ownership continues in both businesses as it exists right now. What's happening is the existing company is becoming two new companies. . . . The active management is the same. The names are the same, and the marketing missions are the same.
"The change that occurs is you now have two management groups, each focusing" on a different kind of business, Hawley said. "That kind of focus and concentrated effort predicts to grow sales and values even more rapidly than in the past."
Under the plan, holders of each share of Carter Hawley common will retain that share and receive $17 in cash plus a share in the new specialty store company.
Hawley dismissed the suggestion that the company's 56,000 employees might be disgruntled at the board's rejection of a $60-a-share takeover proposal in favor of a restructuring. After all, he said, they'll now get a chance to be part owners of a new company with strong growth potential.
"Employees and management will own on the magnitude of 45% of the new (specialty store) company," he said. "That puts everybody in an entrepreneurial mode. Our role changes to much more of an ownership role. There's a great deal of excitement about it."
Stock Price Climbs
In trading Tuesday on the New York Stock Exchange, Carter Hawley shares climbed $1 to $48.50, with more than 4.3 million shares trading hands. General Cinema purchases specified under the plan accounted for 3.5 million of those traded. Shares in that company climbed 50 cents to $45.50.
Hawley stressed that the company's eight independent directors considered the takeover proposal and restructuring plan separately, without management or General Cinema directors being present.
"They met on Sunday without any of us being in the room for over four hours. They arrived at a decision first of all on the Limited offer and then deliberated and decided on a separate question: Was the company better to stay as it was or to adopt the proposed restructuring? Those were considered totally independent of one another."
The rates of growth projected for Hawley's "D" Co. will take more than focus and concentrated effort to achieve. A "business plan" filed with the Securities and Exchange Commission shows net earnings at the department stores rising a phenomenal 228% from 1987 to 1990, to $118 million in 1990 from $36 million in 1987.
Those ambitious results would depend on the sale of underperforming assets, more efficient credit management, coordination of functions and distribution methods, Hawley said, adding that they are "economies that we think we're going to get."