Hills talks big about mergers - again - Hills Department Stores Inc.; Mark Dickstein also resigned as chairman

Discount Store News, Feb 19, 1996 by Laura Liebeck

CANTON, MASS.-- Hills is again in transformation. Again the company has a new crop of players to lead it--but now instead of seeking to sell the chain to the highest bidder, it claims to be seeking acquisition targets for a suitable merger.

The 164-unit discounter announced this month that it will seek to acquire other regional discounters in the quest to become a larger, stronger operator. Some analysts questioned the viability of this goal, which was first articulated last November by Mark Dickstein, who won control of Hills last summer in a proxy fight and then claimed the chairman title. Few regionals would make attractive targets. and Hills may lack the wherewithal. Hills' preliminary report of 1995 sales was up 1.5% to $1.9 billion--but a net loss is a near certainty, in part due to the $43.5 million in golden parachutes paid last year to departing executives. Originally, Dickstein said he wanted to sell the chain as part of a plan to enhance shareholder value. But the stock quickly plunged from its pre-takeover price of $24 to below $12.

Although Hills has yet to announce specific targets, speculation has been set on Venture, now in the throes of a makeover from a discount department store to a soft lines-oriented retailer. And in a late '95 interview with DSN, Dickstein described the ideal super regional chain as a combination of Hills, Venture and ShopKo. Days prior to the latest management shake-up, both Hills and Venture denied an acquisition was in the offing.

Dickstein resigned his post Feb. 8, replaced as chairman by Chaim Edelstein, a former chairman of A&S Department Stores. Dickstein recruited Edelstein last year as a consultant, concentrating on inventory management and control. At one time last spring, Edelstein was expected to become the chain's president and ceo. Dickstein will remain on the board.

Dickstein's resignation as chairman was joined by that of Jack Smailes, president and ceo, who was replaced by Gregory Raven, who formerly served as chief financial officer of Revco Drug Stores.

Smailes, who also resigned from the board, rose to the helm of Hills in the wake of last summer's management shake-up. He told DSN that he leaves a strong management team behind.

According to a statement issued by Dickstein, "The Hills board has concluded, based on the advice of Bear, Stearns and the existing dynamics of the discount retail industry, that the best way for Hills to maximize shareholder value is to preliminarily explore the merits of combining with other regional discount retailers. It is the board's plan to only explore potential combinations which Hills' management team would lead, are immediately accretive to shareholder value and do not adversely affect Hills' existing debt-to-equity ratio. The board believes that Greg Raven as ceo and Chaim Edelstein as chairman are the ideal combination to best enable Hills to pursue this strategy."

Hills also announced that David Brail and Mark Kaufman of Dickstein Partners have resigned from the company's board, replaced by Edelstein and Raven.

Prior to these announcements Feb. 8, Hills asked that the New York Stock Exchange halt all trading of the company's stock. After trading was resumed, the stock closed the day at $10, down 1/8.

Privately, one Hills insider offered an opinion of the shake-up: Dickstein as chairman couldn't realize his goal of the super regional due to a lack of respect for his credentials and some hard feelings remaining after his successful takeover last year. The takeover prompted the departure of then-president and ceo Michael Bozic, now chairman of Levitz Furniture, and several others.

In order for Dickstein to realize his goal, he needed strong and respected retailers in place who could present the image of experience, coupled with tight management controls--Edelstein, as well as a strong financial executive, Raven, who could properly analyze the merits of a potential acquisition and lead the charge.