The Empire Shrinks Back

By Janice Castro

Sometimes, winning your heart's desire is the first step toward losing it. Canadian developer Robert Campeau is learning that lesson, and has only begun ; to pay the price. A onetime machinist's apprentice and a self-made real estate tycoon, Campeau, 66, borrowed his way to the top shelf of the U.S. retailing industry. He spent $3.6 billion in 1986 to buy the Allied group of stores (holdings: Brooks Brothers, Bonwit Teller and Jordan Marsh). Last year he won a $6.6 billion bidding war with R.H. Macy for control of Federated Department Stores, a costly victory that gained him a crown jewel for his retailing kingdom: Federated's glittering, 17-store Bloomingdale's chain. But now Campeau is being forced to put Bloomie's on the block as his highly leveraged empire begins to crumble.

Bloomingdale's may fetch as much as $2 billion in an auction that is expected to attract bidders from Manhattan to Tokyo. Among them is Marvin Traub, chairman of the chain, who is planning a management-led buyout. But selling Bloomie's will not be enough. Campeau's firm conceded last week that it may default on $1.27 billion in fourth-quarter debt payments. The disclosure sent prices of Allied junk bonds plunging 20% in value in just one day, while Federated's fell 13%.

In Toronto trading in the company's shares was halted for three days while the firm scrambled to meet a Friday deadline for repayment of loans from its U.S. investment bankers: First Boston, Paine Webber and Dillon, Read. Campeau averted the crisis by arranging a $250 million loan from real estate giant Olympia & York, a major Campeau stockholder owned by Toronto's Reichmann family. As a result, Campeau's controlling interest in the firm he founded in 1949 slipped below a majority stake, from 53% to about 43%, while the Reichmann holdings increased from 24.5% to some 35%.

Campeau had created problems for himself at a headlong pace. Even as he scooped up retailers, Campeau made plans to build dozens of big department stores. While he spun off such acquisitions as Brooks Brothers and Bonwit Teller to pay part of his $11 billion debt, he insisted that his remaining chains could churn out enough cash to make interest payments, finance expansion and yield profits as well. Instead, the cash registers rang slowly as the retailing industry suffered from stagnant consumer spending.

Campeau has created a vicious cycle in his stores. After losing a combined total of $306 million during the first half of 1989, Allied and Federated face a cash crunch just when they must stock up for the holiday shopping season. In a Securities and Exchange Commission filing made public last week, Allied said its "needs are far greater than its resources."

Bloomingdale's plans to mount its usual theatrical holiday display of luxury goods. But by the time the gold, frankincense and furs are gone, the mecca for wealthy consumers may be yielding its profits to a new owner. Campeau, meanwhile, must find more ways to meet $1 billion in annual interest payments. Says retailing analyst Walter Loeb: "He's going to have to sell more than just Bloomingdale's to get out of the hole he's dug for himself."

With reporting by James L. Graff/Ottawa and Thomas McCarroll/New York