The $3.7 billion leveraged buyout that took R.H. Macy & Co. private six years ago seemed a good idea at the time. Letting managers buy into the business was supposed to generate loyalty, not to mention big bucks when the chain sold shares to tTC the public in the 1990s. Had the gamble paid off, Chairman Edward Finkelstein's $4.4 million investment would have been worth $88 million.
The grand plan ran aground this week. Torpedoed by mammoth debts, a stubborn hiatus in consumer spending and a wobbly balance sheet, Macy's ran for bankruptcy cover from creditors. Once things are sorted out, top-level managers stand to make less than a dime on the dollar.
Macy's is the latest casualty of the 1980s-bred expansion that convinced otherwise intelligent managers to mortgage their companies' futures with unbearable debt. Many, heartened by galloping real estate values in good times, were blindsided by the abrupt free-fall in consumer spending. The ranks of the wounded include some of the nation's biggest names: Federated, Allied Stores, Carter Hawley Hale, Revco, Ames, Southland Corp.
The tentacles of the Macy's debacle reach beyond the imminent struggle between suppliers, who will want to keep stores open, and bondholders, who will want to shutter them for cash. It's another arrow in the pocked hide of consumer confidence, another example of a solid company forced into bankruptcy by unwise choices.
Yet in the perverse world of 1990s-style corporate shakeups, shoppers aren't likely to see much change in Macy's. A $600 million financing package guarantees fresh spring merchandise. The judge in this case is a favorite of bankruptcy lawyers.
If Macy's follows the path etched by at least a dozen other big-name companies -- and there's no reason to think it won't -- it could well emerge from bankruptcy leaner and stronger. It gets to jettison losing locations. The moratorium on debt servicing means more money for fix-ups and technological improvements.
At this moment of dwindling options for Macy's, bankruptcy wasn't such a bad thing. Like many otherwise solid merchants, the venerable chain fell victim to the economic euphoria of the 1980s -- and the over-reach of its manager-owners and its leveraged-buyout financiers. This week, Macy's began the business of coming down to earth.