How Do You Spell Relief? Robert Campeau

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Campeau Corp. disclosed the extent of its financial woes in a Securities and Exchange Commission filing last week. The company said Allied and Federated would incur net losses for the next five years. The report added that even if Campeau liquidated all its Allied and Federated stores, it could not raise enough cash to pay off its total debts. Meanwhile, efforts to sell Bloomingdale's have been disappointing. Campeau hoped to get about $1.5 billion for the 17-store subsidiary when it went on the block last September, but experts say it may fetch less than $1 billion. The most prominent would-be buyer is Bloomingdale's Chairman, Marvin Traub, who has been seeking Japanese support for a bid for the firm.

For Robert Campeau, the American dream that seemed so alluring from north of the border has turned into a nightmare. A relentless overachiever, Campeau once noted how, as a boy in the bleak mining town of Sudbury, Ont., "I thought any house with indoor plumbing was a palace, and I hated the people who lived there." At 14 he became a machinist's apprentice, using the baptismal certificate of a dead older brother to pass for 16. "You have to push yourself to the front of the line," Campeau later noted. He built his first house after World War II, and was one of Canada's largest real estate developers in the 1970s.

Still barging ahead, Campeau acquired Allied for $3.6 billion in 1986. He stunned U.S. retailers two years later by besting the powerful R.H. Macy & Co. in a $6.6 billion battle for Federated. Recalls Jon Levy, chairman of Gillian Group, a leading dress manufacturer: "After a while, it became a contest of wills and ego. Campeau came to feel that it was a game and he had to win the prize." But the price of victory was a debt load that included $2.25 billion of junk bonds that pay as much as 17.75% interest.

To ease the burden, Campeau Corp. may be forced to take refuge in bankruptcy. The move would buy the firm time to trim its debt to more tolerable levels. "I think the best bet would be to declare bankruptcy to protect the store franchises," says Monroe Greenstein, an industry analyst at Bear Stearns. The Federated and Allied chains could then operate under bankruptcy protection, which would entitle them to suspend interest payments and pay suppliers more promptly for their goods. But other Campeau watchers reject that strategy. Says Rothschild's Ross: "There is relatively little that can be done in bankruptcy that cannot be done out of it." He argued that while a bankruptcy filing would reduce interest costs, it would produce legal and other professional fees that could run to millions of dollars a month.

As Campeau Corp. struggled to raise cash, many stores began to lure customers with flashy sales. Bloomingdale's has marked down its winter merchandise twice, and last week offered spring and summer apparel at discounts of as much as 25%. "You just don't do that at this time of year," Greenstein notes. "You put your summer stuff out, but not on sale."