In acquisitions, status may play an undue role during negotiations. For example, the 1988 takeover of Federated Department Stores Inc., the parent company of Bloomingdale’s department store, by Canadian Campeau Corporation had ripple effects.
Representing the largest-ever takeover, beyond the oil sector, in the United States at the time, the $6.6 billion cash deal served to hasten the decline of a long-established system of regional department stores. It marked the ascent of nationwide chains that benefited from the cost savings and efficiencies of centralized administration and purchasing. Campeau had acquired Allied Stores 15 months prior for $3.6 billion. Then, the 1988 deal placed the company behind Sears, KMart, and Wal-Mart. However, the rank came at an extreme cost.
The proposed takeover started with a $4.2 billion offer that reflected an accurate valuation of Bloomingdale’s assets, brand, and market. However, the takeover attempt resulted in a two-month battle with Federated and a rapidly escalating bidding war with department store competitor R.H. Macy. Rather than back down and wait for a more propitious time to mount an acquisition attempt, Campeau wildly overbid Macy.
In the end, the overbid resulted in significant concessions. Campeau sold off Federated divisions I. Magnin and Bullocks, which provided Macy’s with an entry point into the Southern California market. Plus, anti-trust regulators required Campeau to sell off four additional divisions, including Marks & Spencer and Brooks Brothers. The overbid and selloff bankrupted Campeau and caused a crisis in confidence in the junk bond market, hastening a late 1980s Wall Street meltdown.
