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'86 Merger Mania Changed the Face of State's Retailers

January 11, 1987|MARTHA GROVES | Times Staff Writer

Vons, Zodys, Thrifty, Gemco, Safeway, Boys Market, Stater Bros., May Co., J. W. Robinson, Carter Hawley Hale, Lucky--and Vons again.

It's fitting that Vons Grocery of El Monte bracket this roster of California retailers, all of which participated in the wave of mergers, takeover efforts, leveraged buyouts and restructurings that swept their industry in 1986.

After all, the food retailer single-handedly demonstrated a penchant for dramatic action--converting to private ownership last January, then announcing plans in the final hours of Dec. 31 to go public again through a complex merger.

From supermarkets to drugstores to discount stores to department stores, the year just past was one of upheaval in California that saw the demise of well-known chains, forced many changes in ownership and, in a few cases, resulted in the creation of new companies.

May Co. and Robinson's became siblings under the same parent company, while the Broadway's parent made plans to divide up its family of stores into two pieces--department stores and specialty stores. Meanwhile, such names as Ohrbach's, Gemco and Zodys disappeared.

In 1986, it was retailing's turn to experience the merger and acquisition mania that had already torn through such industries as energy, transportation and consumer products.

Once takeover artists belatedly realized that the merchants' undervalued stocks sheltered rich real estate interests and valuable franchises, few retailers were safe from their attentions.

"It's part of the larger scene of what's going on in corporate America," said Philip M. Hawley, chairman and chief executive of Carter Hawley Hale Stores, the Los Angeles-based parent of the Broadway and Neiman-Marcus, which in December announced a restructuring that thwarted an unwanted takeover bid.

"You saw this going on very heavily in the energy industry over the past several years. You've now seen it working its way through in retailing."

In many cases, the deals had or will have profound effects on the financial and management structures of California-based retailing institutions, although customers may not notice many changes--at least in the near future. If anything, merchandising and strategies at the affected stores are likely to evolve as new owners respond to the fierce competition among retailers in Southern California.

Hawley said that consumers can benefit from a company's restructuring because retailers realize they "must be terribly sensitive to take good care of their customers."

On the other hand, industry analyst Joseph H. Ellis said customers may also see some stores where they shop disappear, "with the real estate put to different uses."

Even when the buyout or merger targets weren't based in California, the deals ultimately touched stores where Californians shop. Consider two New York-based retailers: R. H. Macy & Co., with its well-known franchise in Northern California, which went private last summer in a $3.7-billion buyout, and Allied Stores, the parent of Bonwit Teller, Brooks Bros. and Ann Taylor, which knuckled under in November to Canadian real estate developer Campeau Corp.

When observers analyze why 1986 proved so fertile for all this corporate upheaval, they point to two elements that made retailers attractive: real estate and well-known chains.

"The first thing that comes to mind when you talk about the takeover activity in retailing is the real estate values," said Peter K. Barker, a Los Angeles-based partner with the investment house of Goldman, Sachs & Co., which advised many retailers on both sides of the takeover game last year. "There was a view that some of these retailing companies could be broken up and the pieces sold for more than the whole.

"Indeed, you saw in the Allied Stores and Carter Hawley transactions the presence of knowledgeable real estate developers."

Assets Liquidated

In many cases, companies liquidated their assets or borrowed against them to effect or prevent takeovers. For many participants, the rush was on to complete their deals before year-end to lock in more favorable tax provisions before they succumbed to the reform-minded legislation that kicked in Jan. 1.

Clearly, observers say, at the root of the activity was the stock market's fascination with instant gratification. "The takeover game was the game to play, and everybody was getting into it," said William N. Smith, a retail analyst with Smith Barney, Harris Upham in New York.

Frequently, however, the concerns of thousands of individual investors who held small stakes in these companies seemed to fade in importance as raiders and big investors battled over high stakes.

Small investors frequently complained that the real winners were the corporate raiders, who would take huge profits on stock-price run-ups, and investment bankers, with their multimillion-dollar fees.

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