What Campeau will do to Fed er at ed Stores
Boston — So far the big winners in the battle to take over Federated Stores Inc. are the lawyers and investment bankers who handled the deal. Phone calls, paper shuffling, and number crunching have produced at least $200 million in fees. After a bitter two-month, three-way takeover battle, Canadian real estate mogul Robert Campeau spent $6.64 billion for Federated Stores, the fifth-largest retail chain in the United States. But to help pay for it, Mr. Campeau will have to sell some parts of Federated to other companies.
The loser in the battle was R.H. Macy & Co., owner of Macy's Department Store in New York City, said to be the largest department store in the world. Macy's takeover bid had the backing of Federated management, while Campeau Corporation's did not.
``This acquisition,'' Campeau said, ``will further a great deal our retail empire, giving us, in fact, the best department store chain in the world.''
It is the second time Campeau has taken over a big US retail chain. In 1986 he bought Allied Stores for $3.34 billion. Then, as now, Campeau Corporation was buying assets greater than its own.
Federated has more than 650 stores in 15 chains and $11 billion in sales. Federated's assets will be combined with the remnants of the Allied department store chain.
But there is going to be reorganization involving some of the most famous store names in the US before Campeau has ``the best department store chain in the world.''
Brooks Brothers is being sold to British retailer Marks & Spencer for $720 million. Brooks Brothers has been part of the Allied group. Analysts say Marks & Spencer wants Brooks Brothers to spruce up its US image.
To make the deal, Campeau had to make concessions to R.H. Macy, the other suitor that will be buying two chains, Bullock's/Bullock's Wilshire and I.Magnin. In addition, two other Federated chains, Filene's and Foley's, will be sold to the May Company, and two other chains, Mainstreet and Gold Circle/Richway, will probably be sold to as-yet-unnamed buyers.
According to Campeau Corporation, those sales will bring in $4.4 billion, greatly reducing the debt load, which Mr. Campeau himself has estimated at $8.8 billion.
But even in the divisions he keeps, Campeau says, some stores may be closed because they have more value as real estate than as retailers. At a news conference in New York City this week, Campeau said his worry is finance, not jobs. ``It is much better to save 95 jobs than keep 100 and go below the ledger,'' he said.
Campeau will be left with an impressive array of stores. First there's Bloomingdale's, which Campeau has said he will expand into Canada. He will also keep will keep Abraham & Straus, Rich's, Lazarus, Goldsmith's, Burdine's, Filene's Basement, Ralph's, and The Children's Place. The prime chain he retained from the Allied acquisition is Jordan Marsh.
Analysts say these retail heavyweights will give Campeau tremendous negotiating clout with shopping mall developers, since shopping malls generally need one or two major department stores to ``anchor'' a mall and attract shoppers.
``If you are an anchor tenant, you may get 10 to 20 percent of a center for free,'' one analyst said. ``If you were in a position to commit two or three choice anchors - as Campeau would be able to do - you might get 30 to 40 percent.''
As a shopping mall developer himself, Campeau has a firm understanding of the possibilities. ``He could make a shopping center just by agreeing to locate the anchors,'' the analyst said.
But the acquisition is risky. Campeau Corporation, with about $1.6 billion in assets, does not have the $6.64 billion it has agreed to pay for Federated. Instead, Campeau has arranged for short-term financing from such groups as First Boston, a US investment banker, commercial banks, and from individuals such as Edward DeBartolo, who was Campeau's rival for Allied, and Toronto's Reichmann family.
If he is successful in selling off various Federated assets, as he was with Allied, he will gradually reduce the high-interest, short-term financing. Although many analysts believed he was biting off more than he could chew with Allied, he proved them wrong and was able to get that financing successfully tidied away within a year of the purchase.
But times are different now. Many economists believe the business cycle, which has been strong for five years, is due for a downturn that could dampen consumer spending and cause a reduction in the value of Federated's assets.
Campeau Corporation has real estate developments across Canada and the US and that include 23 shopping centers covering almost 8 million square feet; 35 office and mixed-use buildings of almost 7 million square feet; and 49 business parks. The latest development is Scotia Plaza in downtown Toronto, the 68-story headquarters of the Bank of Nova Scotia.
The Campeau fortune was made putting up office buildings and houses for civil servants in Ottawa, Canada's capital. Robert Campeau will continue to live in Toronto, though he says he prefers to do business in the US. ``I like the United States, the way things are done down here,'' he said. ``I consider myself a North American.''
In his battle for Federated, Campeau has watered down his holdings in Campeau Corporation from about 76 percent to a little over than 50 percent. The Reichmanns, owners of the Olympia & York empire, now has a 22 percent voting interest in Campeau Corporation.