TIME: Almanac 1993/TIME Almanac 1993.iso/time/012290/0122209.000

Text File | 1992-08-28 | 9.2 KB | 201 lines

                                                                                BUSINESS, Page 48

How Do You Spell Relief?


With his empire on the brink of bankruptcy, Campeau loses his
command

By JOHN GREENWALD -- Reported by Mary Cronin/New York and James
L. Graff/Ottawa


    In the early-morning chill last Thursday, a line swiftly
lengthened outside Bloomingdale's department store in New York
City. But these were not shoppers eager to get the first crack
at a sale in the chic emporium. They were merchandise suppliers
clamoring to collect their money from Bloomie's, the
centerpiece of Robert Campeau's troubled empire. After the
store offices opened at 8 a.m., some 400 red-eyed vendors
marched inside to pick up their checks.

    Their determination was understandable. Campeau's American
operations are tottering near bankruptcy, and the
Bloomingdale's chain is up for sale. The setbacks have
devastated Campeau, 66, a brash Canadian developer who became
the most powerful retailer in the U.S. when he acquired Allied
Stores and Federated Department Stores in 1980s takeover
fights. Included in the deals were such prominent chains as
Jordan Marsh, Bon Marche, Abraham & Straus and Burdines. But
while the raids made Campeau a high-rolling business celebrity,
they left his Toronto-based Campeau Corp. with more than $10
billion of leveraged-buyout debt and interest charges so high
that the stores could not produce enough income to meet them.


    The company is lurching from crisis to crisis. Campeau Corp.
managed to scrape together $100 million last week to meet the
deadline for paying suppliers who shipped the 257 U.S. stores
everything from tank tops to tiaras. This week the firm hopes
to persuade Citibank and other major lenders to roll over $2.3
billion of loans. But even if the creditors agree, the Canadian
company must put its U.S. retail operations on a sound
financial footing by taking drastic steps to trim costs and
sell properties. Observes Wilbur Ross, senior managing director
of the Wall Street firm Rothschild Inc. and an adviser to
Federated bondholders: "The Campeau people have to get all the
pieces together at once to solve this problem. The stores can
get by in the period after Christmas, but they cannot go
without spring merchandise."

    To reassure creditors, the corporation's directors last week
banished Robert Campeau from all U.S. operations and said he
would confine himself to developing Canadian real estate. The
twelve board members included Albert Reichmann, chairman of
Olympia & York Developments, a Canadian real estate giant that
has invested $700 million in Campeau Corp. and holds a 38%
stake in the company. Emerging from four days of meetings in
Toronto's pink marble Scotia Plaza, the directors said they had
vested control of the U.S. stores in a voting trust to be run
by a board of U.S. trustees.

    The shake-up came as Campeau's troubles threatened to spiral
out of control. Anxious suppliers have refused to sell their
wares to Campeau units for fear of not being paid. At the same
time, Campeau's 100,000 U.S. employees are worried about
layoffs, and many top officers have begun to seek new jobs.
Says Robert Nesbit, a managing partner at Korn/Ferry, the
world's largest executive-search firm: "I shudder at what is
happening. Never before have the proud people at Allied and
Federated sought us out. Now we are talking to three or four
top divisional and corporate people every day."

    Campeau Corp. disclosed the extent of its financial woes in
a Securities and Exchange Commission filing last week. The
company said Allied and Federated would incur net losses for
the next five years. The report added that even if Campeau
liquidated all its Allied and Federated stores, it could not
raise enough cash to pay off its total debts. Meanwhile,
efforts to sell Bloomingdale's have been disappointing. Campeau
hoped to get about $1.5 billion for the 17-store subsidiary
when it went on the block last September, but experts say it may
fetch less than $1 billion. The most prominent would-be buyer
is Bloomingdale's Chairman, Marvin Traub, who has been seeking
Japanese support for a bid for the firm.

    For Robert Campeau, the American dream that seemed so
alluring from north of the border has turned into a nightmare.
A relentless overachiever, Campeau once noted how, as a boy in
the bleak mining town of Sudbury, Ont., "I thought any house
with indoor plumbing was a palace, and I hated the people who
lived there." At 14 he became a machinist's apprentice, using
the baptismal certificate of a dead older brother to pass for
16. "You have to push yourself to the front of the line,"
Campeau later noted. He built his first house after World War
II, and was one of Canada's largest real estate developers in
the 1970s.

    Still barging ahead, Campeau acquired Allied for $3.6
billion in 1986. He stunned U.S. retailers two years later by
besting the powerful R.H. Macy & Co. in a $6.6 billion battle
for Federated. Recalls Jon Levy, chairman of Gillian Group, a
leading dress manufacturer: "After a while, it became a contest
of wills and ego. Campeau came to feel that it was a game and
he had to win the prize." But the price of victory was a debt
load that included $2.25 billion of junk bonds that pay as much
as 17.75% interest.

    To ease the burden, Campeau Corp. may be forced to take
refuge in bankruptcy. The move would buy the firm time to trim
its debt to more tolerable levels. "I think the best bet would
be to declare bankruptcy to protect the store franchises," says
Monroe Greenstein, an industry analyst at Bear Stearns. The
Federated and Allied chains could then operate under bankruptcy
protection, which would entitle them to suspend interest
payments and pay suppliers more promptly for their goods. But
other Campeau watchers reject that strategy. Says Rothschild's
Ross: "There is relatively little that can be done in
bankruptcy that cannot be done out of it." He argued that while
a bankruptcy filing would reduce interest costs, it would
produce legal and other professional fees that could run to
millions of dollars a month.

    As Campeau Corp. struggled to raise cash, many stores began
to lure customers with flashy sales. Bloomingdale's has marked
down its winter merchandise twice, and last week offered spring
and summer apparel at discounts of as much as 25%. "You just
don't do that at this time of year," Greenstein notes. "You put
your summer stuff out, but not on sale."

    While quite a few suppliers are still cautiously providing
goods to Bloomingdale's and other Campeau subsidiaries, the
threat of new cutoffs hangs over the stores. Notes Bert Hand,
president of Hartmarx: "These stores are going to end up
somewhere, whether in the current organization or under new
ownership. Either way, we want to make sure that we don't lose
continuity. But on the other hand, we can't put ourselves in
too much risk."

    Most Allied and Federated stores are likely to stay in
business no matter how Campeau ultimately fares. The chains are
far better merchandisers than B. Altman, a declining retailer
shuttered last year by George Herscu, an overleveraged
Australian raider who acquired the company in 1987. The
problems at Allied and Federated stemmed from no fault of their
own but were caused mainly by the audacious price that Campeau
paid.

    Yet Bloomingdale's and other Campeau chains, which operate
in an extremely competitive industry, could be crippled by the
financial turmoil. For one thing, the exodus of experienced
managers comes at a time when department-store retailers are
under attack from catalog merchants, discounters and specialty
stores. Moreover, a crunch could occur this spring if Campeau's
troubles cause more suppliers to defect. Says Gillian's Levy:
"All I care about now is for the situation to be resolved as
soon as possible, or Federated will no longer be viable. The
longer they procrastinate, the longer they go without
merchandise. Then customers will start going to other stores,
and Federated will lose them forever."

    Many suppliers blame the 1980s buyout binge for the Campeau
debacle. In the process of arranging enormous loans for
overreaching raiders, the lenders and investment bankers paid
little or no attention to whether the buyouts could survive
over the long haul. The toll has been particularly heavy among
retailing companies. In a study of 25 retail buyouts between
1983 and 1985, the Ernst & Young accounting firm found that
nearly 40% had gone bankrupt or slashed their operations. For
big-eyed shoppers like Campeau, the buyouts might have looked
tempting, but they were hardly bargains.



____________________________________________________________ THE
CRUMBLING DOMAIN

    The Canadian raider assembled a U.S. retailing empire that
has 100,000 employees:


    FEDERATED: He paid $6.6 billion for the company that now
includes Abraham & Straus (stores: 14), Bloomingdale's (17),
Burdines (30), Rich's/Goldsmith's (26) and Lazarus (43);

    ALLIED: Campeau paid $3.6 billion for the store group that
now comprises Bon Marche (39), Jordan Marsh (26), Maas
Brothers/Jordan Marsh (38) and Stern's (24).