Opinion ID: 389315
Heading Depth: 2
Heading Rank: 3

Heading: The CHH Approach.

Text: 15 In 1977 the Field's board decided to hire Angelo Arena, then head of CHH's Neiman-Marcus division, to commence employment with the company in 1977, work with its current president, Joseph Burnham, for two or three years, and then assume the presidency of Field's on Burnham's retirement. However, when Burnham died unexpectedly in October of 1977, the Field's board determined, in an emergency meeting held three days after Burnham's death, to elect Arena to the presidency immediately and ask him to come to Chicago earlier than originally planned. In the three day interval CHH made informal contacts with intermediaries and expressed an interest in merging with Field's. The board was informed of those contacts at the October 13 meeting and resolved at that time not to consider the merger. 16 CHH continued to press its attentions however, and on November 16, Arena asked Field's antitrust counsel, the Chicago law firm of Kirkland & Ellis, to investigate the antitrust aspects of such a merger. Field's board met the next day, and authorized Arena and George Rinder, another director and Field's executive, to meet with representatives of CHH. That meeting took place the next day. The CHH team expressed their reasons why a merger would be good for both companies, and noted that a foreign firm was likely to make a $60.00 tender offer for Field's at any time. Field's representatives conveyed the board's position that internal expansion would be best for Field's, and expressed concern about antitrust problems of such a merger. CHH responded that their counsel had opined that there was no antitrust deterrent to the merger. Field's representatives agreed to report the discussions to the Field's board. 17 On December 2, Hammond Chaffetz of the Kirkland firm advised Field's management that in the opinion of Kirkland & Ellis the proposed combination would be illegal under the antitrust laws in light of (a) the existing competition between Field's stores and the Northbrook Neiman-Marcus store; (b) the potential competition between Field's Chicago stores and the Chicago stores Neiman-Marcus was planning to open; and (c) the existing competition between Field's stores (second in book sales in Chicago) and the stores operated by CHH's Walden division. Chaffetz' opinion was conveyed to Field's directors. 18 On December 10, Philip Hawley, the president and chief executive officer of CHH, called Arena and told him that unless Field's directors agreed to begin merger negotiations by the following Monday, December 12, he would make a public exchange proposal. He told Arena that CHH would propose beginning negotiations with an offer that for each share of Field's common stock CHH would exchange a number of its shares roughly equivalent to $36.00. Arena refused to enter such negotiations. Field's shares were trading on the market at around $22.00 per share on the Friday before Hawley delivered his ultimatum. 19 Arena construed Hawley's call as the beginning of an unfriendly takeover attempt by CHH. He contacted Flom, and arranged a meeting of key Field's directors, counsel, and investment bankers for the next day. At the meeting Arena reported the Kirkland & Ellis opinion. It was agreed to poll the absent directors for authorization to file a suit seeking resolution of the antitrust issues posed by the merger proposal. The group also determined to inform the New York Stock Exchange, and to call an emergency meeting of the Field's board for December 13. 20 On Monday, December 12, 1977, the CHH letter was received. Arena contacted all Field's directors but one by telephone, and they authorized the filing of the antitrust suit. 21 The special meeting of the board took place the next day with all members present. Also at the meeting were Field's attorneys and investment bankers. The lawyers, particularly Chaffetz, opined on the lack of legality of the merger, and the investment bankers evaluated the financial aspects of the merger. Field's management then made a report and projected that the company's future performance would be generally favorable. Many of the directors agreed with the investment bankers that a share of common stock would bring more than $36.00 in a sale of control of the company. After consideration of the above factors the directors voted unanimously to reject the proposal because in their judgment the merger as proposed would be illegal, inadequate, and not in the best interests of Marshall Field & Company, its stockholders and the communities which it serves. 22 The directors also authorized issuance of a press release conveying their decision. On December 14, Field's issued the press release, which indicated that Field's directors and management had faith in the momentum of the company, and that it would be in the best interests of our stockholders, customers and employees for us to take advantage of this momentum and continue to implement our growth plans as an independent company. Field's shares traded in the market in a range of $28.00 to $32.00 that day, and continued in approximately that range until January 31, 1978. 23 On December 20, 1977, Arena addressed a letter to Field's stockholders in which he spoke optimistically of the future and reviewed Field's immediate past performance. He pointed out that Field's had disposed of unprofitable ventures, and that for the nine months ended October 31, income before ventures and taxes was up 24.4% and consolidated net income was up 13%. He referred to the CHH proposal for negotiation and to the advice of antitrust counsel that a CHH-Marshall Field & Company merger would clearly violate the United States antitrust laws, and concluded that (y)our Board of Directors believes the maximum benefits for Marshall Field & Company and its stockholders, employees, customers and the communities it serves will result from continuing to develop as an independent, publicly-owned Company. 24 On January 5, 1978, Field's issued another press release, announcing that it had amended its antitrust suit against CHH to include allegations of federal securities law violations. The release reiterated Field's confidence in its future, and stated our management is continuing the implementation of our longstanding programs to further build and develop the business of Marshall Field & Company. 25 On January 19, 1978, Field's directors had their regular meeting. Two expansion proposals were on the agenda: one that the company expand into the Galleria, a Houston shopping mall where a planned Bonwit Teller store had failed to materialize, creating an attractive opening; the other that the company acquire a group of five Liberty House stores in the Pacific Northwest. The Galleria already contained a CHH Neiman-Marcus store. The board resolved to pursue both expansion programs. Field's executives and directors had long considered expansion into these two areas, and the company's interest in such expansion was well known to investment analysts in the department store field. 26 On February 1, CHH announced its intention to make an exchange offer of $42.00 in a combination of cash and CHH stock for each share of Field's stock tendered. The offer was conditioned on the fulfillment or non-occurrence of some twenty conditions. Appropriate documents for announcement of a tender offer were filed with the SEC. The market price of Field's stock rose to $34.00 per share, and stayed in the $30.00 to $34.00 range until February 22, 1978. 27 A special meeting of the Field's board was convened the next day to consider the new offer. The legal implications of the CHH filing were explained to the board by counsel, and Chaffetz brought the group up to date on the antitrust suit. There was no discussion of the adequacy of the offer in light of the board's determination that the proposed combination would clearly be illegal. The board also determined to go ahead with the Galleria plan, and approved the signing of a letter of agreement to enter the mall. 28 After the meeting Field's issued another press release reaffirming its opposition to the proposed merger. It concluded with a statement by Arena that I assumed my position with Marshall Field & Company with the understanding that I would devote myself to making Marshall Field & Company a truly national retail business organization. We are determined not to be deterred from this course. Our recently announced agreement to acquire five Liberty House Stores in Tacoma, Washington and Portland, Oregon was one step in our program. 29 On February 8, another Field's press release announced that Field's had concluded negotiations for a department store to be opened in the Galleria. On February 22, CHH announced that it was withdrawing its proposed tender offer before it became effective, because the expansion program announced by Marshall Field since February 1st has created sufficient doubt about Marshall Field's earning potential to make the offer no longer in the best interests of Carter Hawley Hale's shareholders. None of the events that conditioned CHH's tender offer had occurred since February 1. Following the announcement, the market price of Field's shares dropped to $19.00, lower than it had been on December 9, the last trading day prior to CHH's first proposed offer.