The Chapter 11 filing by Alexander's Inc., owner of the now-closed chain of 11 New York area department stores, is one of the odder bankruptcies around.
For starters, the value of the company's assets, including prime real estate, greatly exceeds its debts. Its stock, traded on the New York Stock Exchange, is up sharply since the bankruptcy.
The filing seems linked to the departure of Donald Trump from Alexander's board. Trump left the board April 16 after turning over his Alexander's shares to Citibank in partial payment of a $70 million debt. Trump, remember, abhors the word "bankruptcy." Alexander's went broke May 15, saying it was in "the best interests" of the company.
But the more I crunch the numbers, the more it looks as if a major reason -- maybe the major reason -- for Alexander's bankruptcy is public relations. Alexander's cash and the proceeds of its going-out-of-business sale were enough to pay its suppliers in full and close its stores without resorting to Chapter 11.
So why file? That way, no one can blame Alexander's board of directors for closing the stores and putting 5,000 employees on the street. No blame attaches to Alexander's dominant shareholder, a low-profile real estate developer named Steven Roth. And as Citibank pointed out in a news release, the three Citibankers on Alexander's board abstained on the bankruptcy vote.
Listen closely, and you hear the chant: "It's not my fault."
Roth's name has barely been mentioned, which is the way he likes it. The man, a believer in the "It's the whale that comes to the surface that gets harpooned" school of public relations, has gone to the trouble of hiring the expensive spinmeisters at Kekst & Co. to say that he has nothing to say.
The financial reason for the Alexander's bankruptcy, to the extent there is one, seems to involve another batch of low-profile rich people, the Gruss family. The Grusses -- it rhymes with "mooses" -- own 18 percent of the partnership that owns the Alexander's store at Lexington Avenue and 59th Street, prime Manhattan real estate. The Grusses have the right to sell their holding to Alexander's for $35 million through August 1993, and Alexander's doesn't have the cash to pay them.
I can't tell you what the players in this game have to say, because no one would talk on the record. So I'm basing this article mostly on public information, and my interpretation of it.
What we have here is a classic example of how easy it is to assume that the famous players -- Donald Trump, Citibank, Alexander's founding Farkas family -- are the real powers, and to ignore the low-profile types such as Steve Roth and the Grusses. In this case, it's the low-profile folks who have the clout.
Despite his paucity of press clippings, Roth, 50, does have plenty of money, not to mention a track record in dealing with dead discount chains. In 1981, he closed the failing Two Guys chain, ultimately making huge profits for himself and his partners at Interstate Properties, whatever that may be. And, for that matter, fat profits for the investors who own the 48 percent of Vornado Inc., Two Guys' parent company, that Roth doesn't control.
Roth, who had Interstate buy a big piece of Vornado stock in the late 1970s, took control in 1980 after a proxy fight with the old managers. Vornado had money-losing stores sitting on valuable real estate. Sound familiar? Yup. Just like Alexander's.
So in 1981, without putting Vornado into bankruptcy, Roth closed Two Guys, which at one point was a national chain, put the employees on the street, leased the vacant stores to able operators such as Bradlee's and Wal-Mart, and watched the money roll in.
The result: Vornado shares, which traded at about $3 (adjusted for a stock split) on the New York Stock Exchange 10 years ago, now go for $32.50. Interstate Properties owns 4.8 million Vornado shares, worth more than $150 million, about 10 times my estimate of what Interstate paid for them. Roth himself has an option to buy 1 million Vornado shares for $9.45 each, which gives him a paper profit of $23 million.
Just as Roth took over control of Vornado after a proxy fight, he seems to have taken effective control of Alexander's board after Trump began choking on his debt two years ago.
Trump owned 27 percent of Alexander's, enough to put him on a par with Roth, who owns or controls about 29 percent. Roth and Trump fought each other to a standstill over what to do about Alexander's real estate, which includes the aforementioned Manhattan site and choice properties in Queens, Brooklyn and New Jersey. Meanwhile, Alexander's retailing business went into decline, and began losing large amounts of money three years ago.
Trump turned over his Alexander's stock to Citicorp in return for Citi removing his personal obligation to pay the whole $70 million loan. Instead, Trump is now on the hook for only $15 million.
Whether Roth can turn Alexander's into Vornado II is far from clear. He closed Two Guys in 1981, just as a real estate boom began. There doesn't seem to be such a boom on the horizon now.
Regardless of what happens, it's sound business to close Alexander's stores -- the company had been selling real estate to pay for losses, and you can't do that forever. However, you can fault Roth and most of Alexander's other directors for closing the stores and hiding behind Chapter 11. That's just not nice. But it should make for a fascinating bankruptcy.
Allan Sloan is a columnist for Newsday in New York.