Launching a full-court press against Federated Department Stores, hostile suitor Campeau Corp. offered Wednesday to raise its bid for the retailer to $5.5 billion, but only if Federated agrees to the deal by Saturday afternoon.
The proposed $1.3-billion increase, to $61 a share from $47, was seen by retail industry observers as putting enormous pressure on Federated, parent of Bullock's department stores and Ralphs supermarkets among other chains, to devise a restructuring plan that would offer better value to shareholders if it is to avoid a takeover by the Canadian development firm.
"This has put a lot of heat on Federated because the price is real high," said one New York risk arbitrager who asked not to be identified. In effect, Federated must now come up with a better deal than $61 a share for its stockholders.
Cincinnati-based Federated, which has not yet responded to Campeau's initial Jan. 25 offer, had no comment on Campeau's latest maneuver. The Federated board is expected to meet today in New York and issue a statement by Friday, the company's self-imposed deadline for communicating with shareholders.
Concerns Over Funding
"I think Campeau's trying to get them to sit down and talk," said Thomas H. Tashjian, a vice president at Seidler Amdec Securities, a Los Angeles investment house. "Campeau is trying to keep the ground under Federated management a little unsettled."
Since making its initial $47-a-share offer, Campeau has repeatedly requested meetings with Federated's board to negotiate a deal. In a letter Wednesday to Federated Chairman Howard Goldfeder, the Toronto company's chairman, Robert Campeau, again expressed his displeasure at Federated's unwillingness to meet.
Campeau said his company is "confident that all necessary funding can be obtained" for the higher bid. Campeau added that the company could commit more than $1 billion in equity toward the deal.
Some industry observers had voiced concerns that Campeau Corp., which paid $3.5 billion for Allied Stores just over a year ago, would be unable to finance another large takeover. The defection Tuesday of top members of the investment banking team at First Boston, Campeau's adviser, also was viewed as a setback for Campeau.
An Attractive Target
Sources close to Campeau indicated Wednesday, however, that the two investment bankers, Bruce Wasserstein and Joseph R. Perella, would continue to advise Campeau in its Federated bid, along with First Boston.
Federated stock, which had tumbled $2.50 a share Tuesday, rallied Wednesday, rising $1.125 to close at $52.375 in composite New York Stock Exchange trading, with nearly 3.3 million shares changing hands. The shares had closed at $35.875 on the Friday before the offer was announced.
In his letter, Campeau set a deadline of 5 p.m. EST Saturday for agreement on the new offer. Otherwise, the offer will revert to the original $47 a share.
Federated is a likely takeover target for a number of reasons. It owns a large amount of real estate and has some of the best-known franchises in retailing, including Bloomingdale's, I. Magnin and such regional chains as Filene's in Boston. Moreover, the company has had a history of lackluster earnings growth in recent years.
Observers said the proposed increase to $61 a share makes it vital for Federated to come up with a plan that would appease shareholders.
On Wall Street, bets were that Federated would borrow heavily and either repurchase a large amount of stock or make a big cash distribution to shareholders and sell assets to reduce the debt. Ralphs, the Compton-based supermarket chain, is a likely candidate to be sold if cash must be raised, most observers agree.
"Either way," the arbitrager said, "the company would be paying it to shareholders in one form or another."
He added that, in addition to restructuring, the company should consider installing new management.
Analyst Tashjian, who estimates the breakup value of Federate at between $60 and $65 per share, said he still would be surprised if Federated accepted even the new offer.
"The best option is some type of restructuring that also probably spins off or sells off some of the divisions (to shareholders)."
One Federated executive said it "is not too surprising" that Campeau upped the ante. "Obviously, this latest bid is going to complicate things (for Federated's board)," he said.