Brascan Ltd of Canada's Hostile Bid for F. W. Woolworth Co.

an unwanted hundredth bithday present

On 9 April 1979 the American parent company was shocked to the core. Out of the blue a much smaller Canadian company, Brascan Ltd, launched a hostile takeover bid for the whole enterprise. Had it succeeded they would have taken control of 4,593 stores, including 1,458 F.W. Woolworth branches in the USA, 212 in Canada, 197 in Germany, 24 in Mexico and 8 in Spain, as well as 383 Woolcos, 2,035 Kinney Shoe outlets and 276 Richman Brothers stores in North America. They would also taken control of the British company's 1,026 stores, thanks to their 52.7% share.

Brascan operated rather like a modern venture capital company. It bought and restructured businesses, principally in the energy and property sectors. It was only about a quarter of the size of the F.W. Woolworth Co., and intended to finance the $35-a-share bid by borrowing. After the event some commentators observed that the move may have been cleverly orchestrated to save Brascan from a predator.

Brascan owned a number of Latin American energy generating businesses. It had recently sold a Brazilian asset, making it cash rich, but had declined to sell its other interests to a rival. Edper Associates was keen to acquire those businesses, which would have complemented their own. Rumours circulated that Edper was planning a bid for Brascan. The daring move on Woolworth proved too much for Edper.

Brascan's Woolworth bid highlighted low and declining returns from the retail giant since World War II, suggesting that the management was weak and had been outflanked by rivals like S.S. Kresge. The Canadian bidder argued that annual turnover of $6.1 billion should generate profits of much more than the $130m that the Woolworth management had achieved. They also highlight the fact that the bid offered a significant premium over the prevailing share price when it was made.

Edward F. Gibbons, the Chairman and CEO of F. W. Woolworth Co., (left) announced that his Board had unanimously rejected the bid.

In an angry statement he declared that the bid was "grossly inadequate" and said that Woolworth would be contesting the bid not just with investors but also through the Courts. Woolworth alleged that Brascan had used industrial espionage to gain access to privileged information. The retailer's legal team argued that the bid was compromised because the Canadian Imperial Bank of Commerce was a major Woolworth creditor and had seen the firm's strategy and projections, and had also agreed to fund Brascan's hostile bid. Gibbons copied the bidder by launching a hostile bid for a drugstore chain, Revco, as the skirmish continued.

In the end Woolworth won through, remaining independent despite the onslaught. Effective public relations put out the story that the chain had a contingency plan for a hostile bid and had simply put it into effect. It seems that the reality was rather different. The corporation came within a whisker of changing hands, and was saved not by its business plan but by its attornies. Today Venture Capital companies often take big public companies private for recovery. Indeed today Company Directors are legally compelled to "maximise shareholder value" which means they cannot reject generous offers just because they do not want to sell. They are obliged to consider the long term interests of their investors.

Within four years of the bid the Corporation had closed every American Woolco and disposed of its controlling interest in the Britain subsidiary in order to pay down debt. After a decade half of the North American five-and-tens had gone and within 18 years the Woolworth name had disappeared in North America, replaced by an Athletic Shoe Brand, Footlocker. So was the Brascan offer "grossly inadequate"?