Garfinckel's parent company was incorrectly identified in a Business section article yesterday. Allied Stores owns Garfinckel's.
R. H. Macy & Co., one of the nation's preeminent department stores, yesterday announced that its top management plans to buy the company in a deal worth $3.6 billion -- the largest offer ever in the retailing industry.
The takeover could trigger many more among retailers, financial analysts predicted yesterday, after first expressing surprise at Macy's move.
In what one analyst called "one of the best-kept secrets on Wall Street," Macy Chairman Edward S. Finkelstein and President Mark S. Handler stunned the retailing community with their disclosure that they and other senior management members would take the publicly held company -- the 10th-largest retailer in the country -- private.
Under their proposed leveraged buyout, the management would pay $70 in cash for each of the 51.2 million outstanding shares -- a price that was nearly 50 percent above the $47.125 at which Macy's stock was traded on Friday before the announcement.
"The fireworks should start shortly," said Stacy Ruchlamer of Shearson Lehman Brothers. Even before the Macy's announcement, department store chains were rumored as likely takeover candidates, Ruchlamer said. But the companies mentioned were Allied Stores, The May Co. (parent of the local Hecht Co.), Federated Department Stores (parent of Bloomingdale's) and Associated Dry Goods (which owns Garfinckel's and other stores). "There were never rumors about Macy's," he said.
With Macy's now taking the lead, Ruchlamer and other analysts predicted more retailing takeovers would follow.
"This is wonderful, absolutely wonderful," said Alan Silverman, who follows retailing stocks for Evans & Co. Inc. "It means all my department stores are now in play. All the money will come sloshing out of food companies the latest takeover targets and into retailing stocks," he said.
Yesterday, that appeared to be happening already, as Macy's stock jumped by $16.125 to $63.25 a share. But other retail stocks also fared well. Federated's jumped $3.125 to $67.125; Allied Stores climbed $2.675 to $56.675 while May Co. stock rose $2.125 to $58.
The $3.6 billion Macy's offer compares with the largest non-oil industry takeover bid of $5.6 billion by Philip Morris Inc. for General Foods Corp. The largest oil takeover price was $13.3 billion by Chevron Corp. for Gulf Corp.
Although surprised by Macy's announcement, financial analysts unanimously said the leveraged buyout was a good move for the company and its shareholders. Under a leveraged buyout, some of the company's assets might be sold to finance the acquisition.
Macy's assets are numerous, including its flagship store in Manhattan, which the chain modestly calls "the world's largest department store." Operating under the name of Macy's, Bamberger's -- and, until recently, Davison's -- the company runs 96 department stores across the country. It has launched aggressive expansion plans that include opening three new stores in this area -- under the Bamberger's name -- in 1987 and beyond. The first store is slated to be opened at Tysons Corner II in Fairfax County.
Among assets that might be sold to pay for the takeover, several analysts noted that the company's Midwest division -- one of its weaker performers -- would be a likely candidate. In recent weeks, there have been rumors that the southern department store chain, Dillard Department Stores Inc., was considering buying the division. Dillard officials have denied that rumor, but yesterday, no Dillard executives were available to comment on that prediction, which again has been raised by several analysts.
The 147-year-old retailer "has been regarded as the the darling of the department-store industry for the past five to six years," said Fred E. Wintzer, an analyst with Alex. Brown & Sons Inc. Although the company had been slow to modernize in the 1970s, it remodeled and revamped its merchandising efforts within the past five years to make it one of the industry's innovators. In the process of modernizing, the chain upgraded its merchandise to become a more fashion-oriented organization -- and one that ran constant promotions.
Yet, within the past year, much of the luster has worn off Macy's stars, as the downturn in retail sales and the increased competition from rival department stores ate into profits. For its fiscal year, which ended Aug. 3, the company reported its worst performance in a decade, with profits dropping by 14.6 percent from the previous year -- to $189.3 million from $221.8 million.
"It was a great company with a great record, but it had run out its strategy as far as it could go," Wintzer said. "It needs a breather to put a new growth strategy into place for the future. That's hard to do with a public company with stockholders who are only looking to the short-term."
What's more, Wintzer noted, "Macy's stock had gotten down to a point where its real estate including complete ownership of five shopping centers and 50 percent interest in five others was worth considerably more than the stock. . . . The buyout reduces the chance of a hostile takeover."
The takeover is subject to financing the debt, but a source close to the company said that although not complete, financing was "assured." The management has hired Goldman Sachs & Co. as its financial adviser.
Most financial analysts, noting the premium $70-a-share price, said it was doubtful that other companies would try to counter management's offer and make a higher offer, particularly if it meant that management would oppose the deal.
"I'm sure other people will look at it, but they won't find it easy to run without the participation of management," said Walter F. Loeb of Morgan Stanley & Co. Inc. "Without management, you don't have very much," Loeb added, noting that this buyout was different from others in that many members of senior management were being asked to participate.
Nonetheless, some investment houses were carefully reviewing the $70 bid yesterday, noting only that it was "extremely interesting."