May Department Stores Co., the parent of the local Hecht Co. department store chain, yesterday increased the pressure on the management of Associated Dry Goods Corp., by taking its five-day takeover offer directly to Associated shareholders.
Having heard no firm response from Associated's board on May's offer to acquire the company in a surprise $2.7 billion takeover bid, May said that it would commence a tender offer today, offering shareholders $60 per share in cash to gain majority control of Associated's common stock.
The offer, worth about $2.45 billion, is $6 less per share than May's initial offer. However, the first offer, made in a June 20 letter to Associated (the parent of 14 retailing chains including Lord & Taylor, Caldor's and Loehmann's), was for a stock swap in which every share of Associated would be exchanged for $66 of May stock if the merger was consummated.
"Given the market dynamics which exist . . . we are making this cash offer for the purpose of preserving our options," May's chairman, David C. Farrell, wrote to Associated's chairman, Joseph H. Johnson, who earlier had told Farrell that May's June 17 deadline was "unreasonable." Johnson said Associated would consider May's bid in due course.
Associated officials could not be reached for comment.
"This forces Associated to seriously consider the offer within a timeframe," noted Stuart M. Robbins of Donaldson Lufkin & Jenrette. The retailer will have to make a decision on the initial offer before May's tender offer expires and May will begin to buy shares, Robbins noted. The expiration date is to be announced today.
"May is playing hardball," commented William Smith of Smith Barney, Harris Upham & Co. "May is very serious and is saying, 'We're going to get you one way or another.' Associated is in a pretty weak bargaining position at this point." Among other things, analysts noted, the fear of shareholders lawsuits will make it difficult for the company to turn down a higher bid.
With Associated stock closing yesterday at $65.75, the second offer would mean that some speculators, counting on the initial May bid or a higher offer, would suffer if May's second cash offer is successful.
"We would very much prefer to consummate the June 20 merger proposal which you are currently considering," Farrell wrote. However, he said, if the two companies were unable to reach a friendly merger agreement before the tender offer expired, May would buy control of the company and seek to buy all remaining outstanding shares at the same $60 price.
The $6 difference in price between the initial offer and the tender offer "reflects our strong preference for a stock-for-stock transaction" which, on the financial statements, can be accounted in more favorable terms, Farrell noted.
If May is successful, the merger would join May -- the nation's third-largest department store operator, with $5 billion in sales last year -- with Associated, the nation's fifth-largest department store operator, with sales of $4.4 billion. The merged company would become the nation's second-largest department store operator, replacing Dayton Hudson Corp. for the second spot. Federated Department Stores Inc. would remain the largest.