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Rales Brothers Launch Hostile Tender Offer for Interco

August 16, 1988

NEW YORK (AP) _ The board of Interco Inc., target of a $2.69 billion hostile tender offer, likely will be hard-pressed to devise a restructuring plan attractive enough to keep shareholders from defecting, many analysts say.

A Washington, D.C.-based investor group launched a $70-a-share tender offer for the huge furniture and apparel company on Monday, a week after Interco directors rejected the proposal as inadequate.

The bid is the first big-time takeover attempt orchestrated by the Rales brothers, who already have diverse manufacturing holdings but seek a major foothold in the consumer products industry.

″Seventy dollars is a fair offer, and it’s important that the board give full consideration to fair offers,″ said Robert Buchanan, an analyst at A.G. Edwards & Sons Inc. in St. Louis.

″It’s going to be difficult to come up with a plan that would be significantly more,″ he said.

Robert Hedrick, a vice president at the investment firm Eppler, Guerin & Turner Inc. in Dallas, said: ″The restructuring plan has merit, but I’m afraid it can’t compete with a tender offer.″

Interco stock jumped $2.12 1/2 a share to close at $72.12 1/2 in heavy trading Monday on the New York Stock Exchange, indicating investors are waiting for a higher bid or measures by the company to support the price.

Hedrick said he has valued Interco conservatively at about $70 a share, although some analysts have estimated Interco might be worth up to $78 a share.

The tender offer pressures the Interco board to speed up its ongoing restructuring plan.

In an effort to remain independent, Interco recently strengthened its defenses against unwanted takeover bids and began working on a plan that includes selling the company’s flagging apparel operations and paying shareholders a special dividend.

Analysts said the St. Louis-based company’s apparel operation, which includes the well-known London Fog line, could fetch as much as $800 million.

The Rales brothers have indicated in Security and Exchange Commission documents that they also would sell the unit, as well as other operations, to raise capital for the buyout.

The Rales brothers and their associates already own 8.7 percent of Interco’s 38.4 million common shares outstanding. The pricetag on the shares they do not already own is about $2.47 billion.

Susan Schepman, a spokeswoman for Interco, said the company had no comment on the hostile tender offer.

While Interco’s apparel operations saw operating profits plunge 33 percent in the 1988 fiscal year as the retail industry slumped, other operations have shown impressive growth. Operating profits from Interco’s footwear operations, which include the Converse and Florsheim brands, jumped 77 percent over the previous fiscal year, and operating profits from furniture jumped 21 percent, the company said in its annual report.

Interco reported revenue of about $3.34 billion last year. In addition to its manufacturing operations, the company operates 201 home improvement centers, general merchandise discount stores, men’s specialty apparel shops and specialty department stores in 15 states.

Interco already had been a strong force in the furniture industry with its Ethan Allen and Broyhill lines, but the acquisition of furniture maker Lane Co. more than a year ago solidified its No. 1 position.

Operating through Cardinal Acquisition Corp. and City Capital Associates, Steven Rales, 37, and his brother, Mitchell, 31, initially approached the Interco board with a $64-a-share takeover bid. The group sweetened the offer to $70 a share but the Interco board derided the bid as inadequate.

An acquisition of Interco would give the Rales brothers their long-sought goal of an established place in consumer products. Cindy Carpenter, a spokeswoman for their acquisition group, said the brothers expressed an interest in consumer products as long as three years ago.

But to date, the Rales’ have confined their business interests to machinery and other non-consumer goods. Among the prizes of their acquisition efforts in recent years are Western Pacific Industries Inc., Chicago Pneumatic Tool Co., Mohawk Rubber Co. and Master Shield Inc.

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