In a significant breakthrough in its effort to buy Federated Department Stores, Campeau Corp. was invited to negotiate face to face for the first time Thursday with the retailer's board in New York.
No announcements had been made by either side as of late Thursday, and there was also no word on the fate of Ralphs Grocery. The Federated board had been expected to choose among potential buyers of the 129-store chain, based in Compton.
Wall Street sources said the Federated board's decision to meet with developer Robert Campeau, chairman of Campeau, points toward a potentially swift bargaining period after which Federated would accede to a takeover by the Toronto real estate developer. Federated's holdings also include Bullock's department stores, Bloomingdale's and I. Magnin.
"It sounds like it's over," one Wall Street source said. "The fact they invited him in means they took his offer very seriously. His offer was compelling."
The Wall Street source said that if Campeau is successful in his bid, he undoubtedly would want to be involved in deciding who would buy Ralphs and might want an additional few days to ponder a deal. As of early this week, the leading contenders were reportedly Lucky Stores, based in Dublin, Calif., and Ralphs' management.
Federated's decision to negotiate might have been precipitated in part by a dramatic twist early Thursday, when Campeau announced that it has agreed to sell Brooks Bros., the button-down clothier it acquired just over a year ago, to Marks & Spencer, a British department store. The $770-million purchase of the 47-store retailer, which has outfitted upscale U.S. families since James Monroe presided in the White House, would go through only if Campeau succeeded in buying Federated.
The potential $770-million addition to Campeau's growing treasure chest of bank loans and equity funding put "an immense amount of increased pressure" on Cincinnati-based Federated's board to take seriously Campeau's offer, the Wall Street source said. Campeau has been doggedly pursuing Federated since Jan. 25.
On Thursday, Campeau announced a formal cash tender offer of $66 a share, worth $5.8 billion, for Federated's 88.5 million shares.
The latest tender offer, which boosted a previous tender offer of $61 a share, is a hostile bid that does not require the approval of Federated's board. A previous friendly merger proposal of $66 a share hinged on such approval.
Previously, Federated has rejected two $66-a-share proposals by Campeau as too iffy in terms of funding. Campeau now claims to have equity of $1.5 billion for the offer, an amount that Wall Street sources agreed was a strong showing.
In one observer's view, eliminating the board's approval as a condition was a critical change. "If the board were not to (prevent) a $66 offer from going through, and Campeau's other conditions were met, then shareholders would be free to tender (their shares)," he said. Sources said negotiations could persuade Campeau to bump up his price to $67 or $68 a share, a rich price for a company with prestigious franchises that in recent years has had lackluster earnings growth.
Of the board, this source said: "These are really top-notch business people with great business reputations who aren't normally associated with doing destructive things in the face of such offers."
Late in the afternoon Thursday, rumors circulated among Wall Street analysts and arbitragers that Federated Chairman Howard Goldfeder had resigned. Those rumors could not be confirmed.
In his Thursday letter to the board, Campeau reiterated a willingness to raise his bid should Federated's board agree to negotiate and provide evidence that the company is worth more. He also expressed confidence that he could top any other offer that Federated might have.
"He's saying, 'I'll beat anything. I'm the best,' " a Wall Street source said. "In the face of that, Federated's directors could be lynched by every single shareholder" if they didn't negotiate with Campeau.
At Thursday's meeting, Federated was to consider a variety of other options--including a merger, buyout or sale of assets--to avoid a takeover by Campeau. Federated had already made public plans to sell off divisions, including Ralphs, as part of a restructuring.
At Ralphs' offices in Compton, the mood was grim as an estimated 500 headquarters workers absorbed rumor after rumor about the company's fate. "Management isn't even letting them know what's happening," one Ralphs store employee said.
For the most part, speculation continued to center on two known bidders: Lucky Stores and Ralphs management. Asked whether Federated's board had reached a decision on Ralphs, Christopher M. McLain, Lucky's vice president and counsel, said: "I don't know." He declined to go beyond that. The chain was expected to bring $1 billion.