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Federated Board Rejects Campeau Offer

February 5, 1988

CINCINNATI (AP) _ Federated Department Stores Inc. on Friday sharply rejected a $4.2 billion tender offer by Campeau Corp. and dismissed a Saturday deadline Campeau had set for acceptance of an alternative, higher offer.

The Cincinnati-based retailer called Campeau’s outstanding $47 a share bid ″grossly inadequate,″ and advised its shareholders not to tender their stock under the offer.

Meanwhile, a federal judge in Cincinnati rejected Campeau’s request for a preliminary injunction that would have prevented Ohio officials from enforcing a 1979 takeover law that gives them authority to examine a takeover bid.

Federated’s board of directors, which met Thursday in New York, also said they would consider Campeau’s alternative proposal to pay $61 a share, about $5.46 billion, in a definitive merger agreement only if Campeau proved it could finance such a deal.

Federated stock rose 37 1/2 cents to $56.67 1/2 a share in New York Stock Exchange trading.

The board labeled the $47 a share offer an ″opportunistic attempt″ to take advantage of the decline in Federated’s share price since the October stock market crash by offering a price far below the company’s underlying worth.

Federated stated Campeau had been unable to secure financing for the offer, and financial advisers for the Toronto-based company had indicated ongoing legal obstacles posed by Federated’s takeover defenses posed serious impediments to doing so.

Additionally, in a letter to Robert Campeau, chairman and chief executive officer of Campeau, Federated rejected the 5 p.m. EST Saturday deadline set for acceptance of the $61 a share proposal.

Howard Goldfeder, Federated’s chairman and chief executive, said the board considered the proposal but noted that it also was subject to financing, and Campeau had provided no evidence of the funding.

″If and when you can provide satisfactory evidence of financing commitments for the transaction outlined in your proposal and other evidence that your proposal would be firm and complete, we will consider your proposal...along with other alternatives which the company is now or may then be considering,″ the letter read.

A Campeau spokeswoman in New York said the retailing and real estate development company had indicated previously that it would outline its financing in a meeting with the board, as well as its ability to put up $1 billion in equity. But she said the only response had been Goldfeder’s letter to Campeau.

″We’re confident of our full financing and we want to put a deal together,″ said the spokeswoman, who asked not to be named.

Campeau’s lawyers contended Tuesday before U.S. District Judge Carl Rubin that the law was unconstitutional because it amounts to an unfair impediment. Ohio and Federated lawyers asked Rubin to uphold the law, saying it is intended to protect the interests of shareholders who live in the state.

Rubin ruled Friday that he saw no need to issue an injunction. He said he determines the law applies to the fairness of disclosures to shareholders. He said the law would not impede Campeau’s takeover.

Campeau lawyer Joseph Parker said he would not appeal the decision because the judge had concluded the law would not block Campeau’s bid.

Federated reportedly has been considering a number of alternatives to thwart Campeau’s hostile offer, including a management-led leveraged buyout, a recapitalization or possible merger with a third party.

A Federated spokesman declined to comment on reports that the company had been negotiating with Kohlberg, Kravis, Roberts & Co., the investment banker specializing in leveraged buyouts.

In such transactions, investors buy a company using mainly borrowed funds that are repaid with the company’s cash flow or the sale of its assets.

Some of the criticism directed at Campeau by Ohio lawmakers has been that the company might sell some of Federated’s major assets to help pay the cost of a takeover, potentially resulting in lost jobs and business for the state.

Campeau, which acquired Allied Stores Corp. in 1986, sold a number of that company’s store chains to help pay off the massive debt it undertook to finance the $3.4 billion deal.

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