Targeted for takeover by Canadian developer Campeau Corp., Federated Department Stores filed suit Tuesday in an Ohio court under the state's tough anti-takeover law to block the suitor's $4.2-billion offer.
With its action, Federated indicated to Wall Street "that this is not a friendly, but a hostile, offer," said Walter F. Loeb, an analyst with the Morgan Stanley & Co. investment house in New York.
Federated, based in Cincinnati, is the parent of Bullock's/Bullocks Wilshire and Ralphs Grocery in Southern California and is the nation's largest department store company.
Retail industry observers said they expect the company, which also owns Bloomingdale's and I. Magnin, to take its time before responding formally to Campeau's $47-a-share offer, which was made Monday. "They've got to have some very strategic thinking for a while," Loeb said.
A victory in Franklin County Common Pleas Court in Columbus, Ohio, could help Federated nip Campeau's offer in the bud. The lawsuit would test one of the nation's most stringent anti-takeover measures, passed in late 1986 in the weeks after Anglo-French financier Sir James Goldsmith gave up a $4.7-billion bid for Ohio-based Goodyear Tire & Rubber.
Federated asked Judge Richard D. Letts to declare that the act is constitutional and to prohibit Campeau from beginning legal proceedings in any other court relating to the anti-takeover law. Letts set a preliminary hearing for Feb. 8.
Under the law, companies are allowed to impose shareholder rights plans and other provisions to stave off hostile suitors.
The act also gives corporate boards more leeway to decide whether to accept or reject an offer. Campeau, based in Toronto, on Monday launched legal challenges to Federated's "poison pill" provision.
Many analysts predict that Federated's management would restructure the company--probably by selling units, notably Ralphs--rather than agree to a takeover. The company is rich in real estate assets and high-quality franchises and would have no trouble raising funds for a buyout by management, observers say. Alternatively, a suitor could also turn those assets to advantage in trying to raise financing.
Separately, Federated said the sale of its one-third stake in a Miami shopping mall was closed Tuesday, completing a program to sell off some real estate interests begun in 1980. Federated said the $10.9-million sale of its ownership in International Mall, to JMB/Miami International Associates, will result in an after-tax gain of about $7.5 million in the fiscal fourth quarter, which ends Jan. 30.
Under the divestiture program, Federated has sold interests in more than a dozen shopping centers nationwide. The company continues as a limited partner in JMB/Federated Realty Associates.
In composite trading Tuesday, Federated shares rose $1.625 to $50.625.