YOUNKERS MOVES TO RAISE CARSON’S BID

Byline: Valerie Seckler

NEW YORK — Younkers Inc. said Monday it has adopted a shareholder protection rights plan, a move expected by analysts to drive up the $17-per-share bid for the regional department store chain offered by Carson Pirie Scott & Co., Milwaukee.
By late Monday afternoon, Carson’s officials had requested a meeting with Younkers and said they were prepared to negotiate.
Alan Raxter, Younkers’ chief financial officer, told WWD, “I won’t comment on Carson’s bid, but I think what the market did Friday is indicative of what the market thought of the bid.”
Raxter added that Younkers’ board “will probably meet in the next couple of weeks to discuss the bid.”
As reported, Carson’s is seeking to acquire the Des Moines, Iowa-based department store operator for $152 million in cash plus the assumption of $80 million of Younkers’ debt.
“It’s going to cost Carson’s more to buy Younkers now,” said a financial analyst, who spoke on condition of anonymity.
Peter Schaeffer, an analyst at Dillon Read, agreed.
“I think Carson’s is going to up its bid,” he said. “No one makes their last bid on their first offer. “I think Carson’s will make an aggressive stab at completing the deal. I wouldn’t be surprised by a $20 bid.”
Schaeffer based his projection on an 8 1/2-to-9-times multiple of Younkers’ EBITDA, noting the $17 offer amounts to 6 times EBITDA, a figure he termed “conservative.”
Younkers stock closed Friday at 19, up 3 1/4. On Monday, it closed at 19 1/2.
Younkers said in a statement that its board adopted the shareholder rights plan so the retailer can consider Carson’s proposal without the threat of further stock accumulation.
W. Thomas Gould, chairman and chief executive officer of Younkers, further noted the rights plan “is not intended to and will not prevent a takeover of Younkers at a full and fair price.”
Michael MacDonald, executive vice president of Carson’s, acknowledged he was not surprised by Younkers’ action, saying, “The debate is really: What is a fair price for the shareholder?”
“In my opinion, $17 a share is certainly not a fair value for Younkers,” declared Philip Abbenhaus, an analyst who follows the chain for Stifel, Nicolaus, St. Louis. “To offer $17 for a company whose book value this year will be $19 really isn’t a fair offer. There certainly should be a premium attached to book.”
Abbenhaus is projecting Younkers’ fiscal ’94 earnings-per-share will range from $1.35 to $1.40, boosting its book value from $17.80 to around $19. Younkers earned $1.43 a share last year.
“I think Younkers is worth $22 to $23 a share,” Abbenhaus said. “In most property sales in the retail area there is good will. It’s not a distressed company. It’s going to make $1.35-$1.40 [this year] and has a strong balance sheet.”
Younkers’ financial strength is bolstered by a capital structure that is “all commercial paper that is easily fundable by accounts receivable,” the analyst added.
Abbenhous derived his Younkers-bid valuation based on his earnings projections, good will and the level of debt Carson’s can support in the deal. Carson’s plans to finance the proposed acquisition with cash, its two existing credit lines and a third-party debt placement.
Younkers officials said a dividend of one right on each of its outstanding common shares would be paid on Nov. 11 to stockholders of record on that date.
Upon announcement by Younkers that any person or group has acquired 10 percent or more of its stock or has begun a tender offer that will result in such a purchase, each right will enable its holder to purchase, for an exercise price of $60, a number of Younkers shares having a market value of twice the exercise price, the retailer reported.
An existing holding of 10 percent or more of Younkers stock, including Carson’s present 11.7 percent stake, will not trigger the rights as long as the holder does not acquire any additional shares.
If Carson’s successfully makes the acquisition, said Abbenhaus, the key to Younkers’ success will be whether “Carson’s can unlock Younker’s operating-margin potential.”
He noted that Younkers’ operating margins have been hurt by its fiscal ’92 acquisition of 25 stores from H.C. Prange Co., last year’s floods, ongoing competition from Penney’s, and warm weather in the recently completed third quarter.
Schaeffer said he thinks Carson’s has a good chance of consummating the deal, citing the retailer’s 11.7 percent stake in Younkers and saying, “I believe some of the major Younkers shareholders are being swayed in Carson’s direction.”
Analysts downplayed the likelihood of a competing bid by a third party. They said Younkers’ stores, which mostly are 40,000 to 60,000 square feet, are too small to interest May Co. or Macy’s/Federated, whose units typically range from 150,000 to 250,000 square feet. They also noted that Dillard’s — another retailer they identified as being in an acquisition mode — typically is a bottom fisher and Younkers doesn’t fit that bill.
— Fairchild News Service

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