After months of legal wrangling, shareholders of Woodward & Lothrop Inc. finally should be able to have their say tomorrow on the company's proposed sale to Michigan real estate developer A. Alfred Taubman for $220 million.
Unless a federal judge issues a last-minute order to block a special stockholders' meeting -- as a group of dissidents have requested -- Woodies shareholders will vote tomorrow morning on Taubman's $59-a-share offer for the 16-store chain.
The outcome of the balloting may not be known for several days, Woodies' attorneys say. The controversy over the sale of one of the nation's few remaining independent department store chains has been so intense that the voting is expected to be close. It could take as long as 10 days to count the ballots and verify the accuracy of all the proxies cast by the company's 3,450 shareholders.
"It could be awfully close," predicts one financial analyst who has kept close tabs on the takeover battle.
"I think the shareholders will vote for the deal because there are too many uncertainties if they don't," says Eliot H. Benson, research director of Ferris & Co. Inc.
Many shareholders may be inclined to accept the Taubman offer, agreeing with Woodies management that it is the only firm bid for the 104-year-old company, analysts predict. If the $59 bid is rejected, the company has argued, shareholders may not get a higher offer for their stock, which had been selling for around $45 a share before the Taubman offer and for $35 a share a year ago.
Yet, other investors speculate that shareholders might vote down the Taubman deal, hoping a higher offer will come along.
Monroe G. Milstein, chairman of the Burlington Coat Factory Warehouse Corp., has said that if Taubman's offer is rejected, he will offer $62.40 a share for the company. Milstein's investment advisers at Prudential-Bache Securities Inc. say he has preliminary commitments for financing from two lenders and would be ready to make an offer for Woodies around Sept. 30, when Taubman's offer expires.
But there is considerable skepticism about Milstein's bid. He has talked for weeks about his plans, but has never made a formal tender offer that would back up his talk with cash, as a serious bidder in a takeover fight would be expected to do.
"Some shareholders appear to believe that Milstein's offer could force Taubman to raise his price if his bid is rejected," says one analyst. He notes that Taubman has invested $104 million in his quest for Woodies by purchasing all the unissued stock held by the company, under an option granted when his merger proposal was approved by Woodies' board.
Woodward & Lothrop officials say Taubman's holdings make it difficult for anyone else to buy the company. With 1.8 million shares, Taubman has 32 percent of the stock and thus effective veto power over any merger or sale. Under District of Columbia laws, a change of ownership requires the approval of two-thirds of all shares cast.
"This has become a very sticky wicket," says Ferris' Benson.
As a result, shareholders will have a difficult decision. Woodies' board of directors and top executives are urging a "yes" vote. "By voting in favor of the merger, we feel shareholders not only will receive a fair price but also will enable us to continue the tradition of Woodies and fulfill our obligations to our 8,600 employes and the communities Woodies serves," said Chairman Edwin K. Hoffman in a recent letter to shareholders.
Hoffman and other Woodies directors are opposed by a group of dissident heirs of the store's founders, who are seeking a "no" vote on the grounds that Taubman's offer is inadequate and benefits only the company's top three officers.
If the descendants have their way, the shareholder meeting may not take place tomorrow. They have asked a federal judge to block the meeting on the grounds that the company has violated securities laws in its promotion of the Taubman offer.
U.S. District Judge Joyce Hens Green has promised a decision by today. If she bars the meeting, it will be the second time the shareholders' vote will have been delayed. Green blocked an earlier vote scheduled for the end of July, saying shareholders had not had adequate time to read the massive amount of material they had received from all sides about the merger.
If the judge does allow the meeting to take place, then the dissident shareholders want her to prohibit Taubman from voting his shares. They claim his veto power on merger offers gives him control over the company.
Taubman's lawyers argue that he has not exercised any control over the company and therefore should be allowed to vote his shares.
But the dissidents counter that Taubman has shown his power over the company because his merger agreement kept Woodies from paying the quarterly dividend that normally would have gone to stockholders Sept. 1. Under the merger agreement with Taubman, Woodies was barred from issuing this dividend unless it had Taubman's written consent. Woodies asked Taubman about the dividend, but Taubman didn't respond. His spokesman, Bernard Winograd, said that to have responded one way or the other would have signaled that Taubman was controlling the company's actions -- the very thing Taubman was trying to avoid in the midst of these legal battles.
"If he gets to vote all of his shares, it should be easy" for Taubman to win, predicts one analyst, since the developer only needs 50 percent of the remaining outstanding stock to win a two-thirds vote.
However, if the judge orders Taubman to cast his shares in the same proportion as all the other votes are cast, "it may not be that easy," the analyst adds. The dissidents, who now own 10 percent of the company's stock, would have control over 15 percent without Taubman and would need only 18 percent more to block the deal.
Taubman's offer has generated a long and costly battle over the company's future. Woodies signed the merger agreement with Taubman two months after it was disclosed that a New York stockbroker, Ronald A. Baron, was trying to find a buyer for Woodies.
Baron, who had started buying Woodies stock last year for $37 a share, met with Hoffman last December and offered to arrange a leveraged buyout of the company for $60 a share. Under a leveraged buyout, investors -- usually the company's own management -- buy the business from the stockholders, borrowing the cash needed by using the company's own assets as collateral.
Hoffman rejected Baron's proposal, saying it wasn't in the best interests of the company. Fearful that Baron might find an outside buyer for the company, Hoffman received authorization on March 30 from the board of directors to seek a buyer. The next day, Hoffman and Vice Chairman Robert Mulligan flew to Taubman's Detroit home on Taubman's plane to discuss a merger.
Although Hoffman had been approached by three other interested parties, he regarded Taubman as a perfect candidate who could come up with money for an acceptable deal. Hoffman and Taubman had been friends for several years as the result of deals between Woodies and Taubman's real estate development firm, which owns shopping centers in which Woodies has stores.
Taubman is a multimillionaire who tried to buy Garfinckel's three years ago before it was acquired by Allied Stores. Last year, he bought the Sotheby Parke Bernet auction house. He owns the Michigan Panthers of the U.S. Football League, plus 19 large regional shopping centers and the A&W restaurant chain. His net worth has been estimated to be between $500 million and $2 billion.
Shortly after the March 31 meeting between Hoffman and Taubman, Goldman Sachs & Co., Woodies' financial adviser, began negotiating with Taubman. No other parties were contacted, Goldman Sachs said, because it believed doing so could hurt the negotiations and possibly encourage another, unfriendly, buyer to step in.
A month later, the board approved Taubman's offer. Under the $220 million agreement, Hoffman, Mulligan and Woodies President David P. Mullen will be granted options to buy 20 percent of the newly constituted company for $5 million.
The offer was challenged immediately by a group of descendants of the store's founders. The dissidents, who have no role in running the company but own a lot of stock, claimed the price was too low because it failed to take into account the full value of the company's real estate. Woodward & Lothrop estimates its property would be worth $164 million to $188 million if it were sold. The dissidents contend that the property's value is $276 million to $310 million.
The legal battle has continued all summer, with at least eight different law firms involved.
In total, Woodies has spent about $5 million to fight for the Taubman deal, including money paid to the public-relations firm Gray & Co., which the company hired to help promote its cause. The dissidents estimate they have spent about $2 million.
Additionally, Baron had to spend about $300,000 to fight a lawsuit filed by Woodies to keep him from finding another buyer. The lawsuit was settled earlier this summer, with Woodies agreeing to drop the suit if Baron agreed to support the Taubman merger.
But by that time, Baron had sold all of his 95,000 shares and earned a $2 million profit, which he says he invested in other companies when the stock market started soaring a month ago.
The lawsuit "definitely didn't hurt me," he says. "The whole thing helped my business."