This Takeover Goes Way Past Hostile

Just a few weeks ago, Carson Pirie Scott & Co., the Milwaukee department-store chain, thought it had Younkers Inc. in the bag. Its hotly contested and unusually nasty eight-month takeover battle had succeeded in forcing three directors, including Chairman W. Thomas Gould, off the nine-person Younkers board and replacing them with Carson's representatives. And a shareholder initiative engineered by Carson's had produced a resounding majority vote for a nonbinding proposal to put Younkers up for immediate sale.

Sound like shareholder democracy in action? Guess again. At a June 2 board meeting, Younkers, a staid but resourceful Des Moines department-store company, struck back with a flurry of well-orchestrated maneuvers to snatch an unlikely stalemate from the jaws of defeat. Younkers reseated Gould and the other ousted directors by adding one additional board seat and accepting the resignation of two outside directors.

"INSULTING." Back on the board, Gould argued that even though Carson's proposal to force a sale got 55% of the votes cast, 19% of the shares weren't voted, so it hadn't won a majority of shares outstanding. Besides, Carson's owns 12% of Younkers already, so those shares shouldn't be counted, Gould contended. In a 7-3 vote, the board agreed, refusing to put Younkers up for sale.

The Carson's-Younkers boardroom battle is a far cry from today's quick Lotus-style capitulations. It's a standout even by the wild standards of behavior for the hostile takeovers of the 1980s. "This stuff looks very ugly," says Steven N. Kaplan, a finance professor at the University of Chicago's business school. Younkers Chief Financial Officer Alan R. Raxter terms the Carson's bid "insulting." Carson's Chief Executive Stanton J. Bluestone says he was "shocked and upset" by the machinations of Younkers directors. But there's not a lot he can do about it except take the issue to court--which Carson's did on June 15, filing suit in Delaware Chancery Court, charging Younkers directors with gross breaches of fiduciary duty and conspiring to nullify the shareholder vote.

LANGUISHING. With 53 stores spread over seven Midwestern states, Younkers is an unlikely candidate for such a skirmish. The midprice retailer, with fiscal 1995 sales of $559.1 million, has been struggling since 1992, when it bought 25 Wisconsin department stores for $76 million. Seven quarters of poor results left Younkers shares languishing around 14 last summer, down 57% from their 1993 high of 321/2.

To Bluestone, 60, Carson's low-key but fiercely determined CEO, capturing Younkers would greatly further his strategy to build on Carson's Midwest stores, with 1995 sales of $1.2 billion. Younkers emerged from bankruptcy in late 1993, after an ill-fated leveraged buyout. To Gould, 49, whose lofty ambitions extend to becoming a Presidential adviser, capitulating to Carson's would kill his aim to create his own $1 billion retailer. Younkers rejected the bid as "grossly inadequate" and refused to negotiate. It was no more hospitable to a $19-a-share bid in March. On June 15, Carson's said it would raise its bid to $20 if Younkers agreed to a deal by July 1. Younkers had no immediate response.

FINE LINE. Younkers, which is incorporated in Delaware, a state with a history of pro-shareholder court decisions, may be walking a fine line in its refusal to negotiate, attorneys say. As a general rule in Delaware cases, a board has the duty to act in the best interests of shareholders. "You can argue the board can't reject out of hand an outside suitor--that they have an obligation to consider an offer," says shareholders' lawyer Jeffrey G. Smith of New York's Wolf Haldenstein Adler Freeman & Herz. But a corporation's duty to "maximize value" for shareholders comes into play only once management triggers it with certain actions, such as seeking other suitors. Because Younkers has steadfastly maintained it is not for sale, it likely hasn't crossed that line, says the University of Chicago's Kaplan.

Younkers' resistance has some analysts scratching their heads. A Carson's-Younkers merger makes sense strategically, says Dean Ramos, a retail analyst at Dain Bosworth Inc. The retailers complement each other geographically and operate the same kind of full-line, moderately priced stores. And given the rapid consolidation in retail, the options for small regional department stores are limited: acquire or be acquired. Although Younkers posted improved results in the past two quarters, the retailer, says Ramos, may be running lots of sales to pump up results in the short term. That could hurt profitability down the road--in addition to making the company less attractive to potential acquisitors. There don't seem to be too many of those around, in any case: Since Carson's bid last October, no other suitor has expressed interest.

Can Younkers fend off its unwanted bidder forever? Carson's promises to keep fighting, despite the escalating cost. "By mid-1996, Younkers won't be an independent company," predicts an angry Mark Dickstein, chairman of Carson's and president of Dickstein Partners Inc., a New York investment-banking firm. If neither side budges, Carson's can run another slate of three directors next year, which, if elected, would create a

6-4 Carson's majority on Younkers' board. Vows one large Younkers shareholder: "They've got one year to get earnings turned around, or they're likely to face another revolt." If that happens, it will take more than fancy footwork to save Younkers.

Store Wars

OCT. 27 Milwaukee retailer Carson Pirie Scott makes an unsolicited $17-a-share merger proposal to retailer Younkers.

OCT. 30 Des Moines-based Younkers fights back, adopting a poison-pill plan that is triggered when outside parties acquire 10% of its stock.

Carson's 12% stock holding is grandfathered, but it is prevented from acquiring any more Younkers shares.

NOV. 7 Younkers' board unanimously rejects Carson's offer.

JAN. 5 Carson's starts a $17-a-share cash tender offer for Younkers, using proceeds from the sale of eight Carson's stores.

MAR. 9 Carson's raises its bid to $19 a share.

MAY 30 Younkers stockholders revolt. They approve a non-binding resolution to put the company up for sale to the highest bidder and vote in three directors nominated by Carson's. The three defeated include Younkers Chairman

W. Thomas Gould.

JUNE 2 The three ousted directors are reseated on the board, which votes 7 to 3 not to sell the company.

JUNE 15 Carson's raises its bid to $20 and sues Younkers for gross breaches of fiduciary duty.


Before it's here, it's on the Bloomberg Terminal.