Ames Department Stores Inc. is suing Wertheim Schroder & Co., for more than $375 million, charging improprieties in its role as financial adviser in the bankrupt department store chain's acquisition of Zayre Corp.'s discount stores division in 1988.
The suit, filed by Ames and its affiliated subsidiaries in U.S. Bankruptcy Court for the Southern District of New York, charges Wertheim with "breach of fiduciary duty, professional malpractice, unjust enrichment and other improper conduct" in connection with the October 1988 acquisition of the Zayre division. Zayre now is called TJX Cos. Inc.
One high-yield market source said Ames' bonds changed little in trading yesterday. The market anticipated the litigation, she said, although the dollar amount the company is seeking was higher than expected.
Among other allegations, Ames in the lawsuit says that Wertheim, which also represented Zayre in the transaction, failed to perform sufficient due diligence. Wertheim had advised Zayre that the value of its discount store division was "hundreds of millions of dollars less" than what it shortly afterward recommended that Ames pay, according to an Ames press release describing the lawsuit.
"It's baloney," Wertheim spokeswoman Davia B. Temin said of that allegation. "We contest the entire suit."
In a statement yesterday, Wertheim called the suit "totally without merit" and vowed to fight it.
"The suit, filed nearly two and a half years after Ames declared bankruptcy, and four years after the Zayre acquisition, simply represents another effort by Ames to develop a restructuring plan that will be satisfactory to its creditors," Wertheim's statement says.
Ames' Sept. 3 amended reorganization plan depends in part on the "unsubstantiated hope" of proceeds from the "groundless" suit, Wertheim said.
"Ames failed for a number of reasons, both economic and managerial," the statement says, "It is unfortunate that Ames is trying to make Wertheim Schroder a scapegoat for the failure of the company."
Ames, which operates 369 discount department stories in 15 northeastern states, filed for bankruptcy in April 1990 and hopes to emerge by yearend, Ames spokeswoman Andrea Priest, said.
In addition, Ames' suit also named Wertheim's chairman, James A. Harmon, in the suit for breach of fiduciary duty.
The suit charges Harmon misused his role as chairman of both Wertheim and Ames in 1988 during acquisition by giving Ames' board of directors misleading information about the prospects and real value of Zayre's discount stores division. Mr. Harmon resigned from Ames yesterday, Priest said.
Asked why Harmon resigned, Werthein spokeswoman Temin replied, "No comment. "
In addition to damages exceeding $375 million, Ames is seeking recovery of more than $20 million in investment banking fees. Under bankruptcy laws, Ames says it is also seeking more than $10 million in preference payments made within a year of its bankruptcy filing. The $10 million is part of the $20 million, Priest said.
If Ames wins, its unsecured creditors and bondholders would benefit as outlined in Ames' September plan, Priest said.
Under the amended plan, the first $20 million of net proceeds from the litigation would be shared equally by Ames and its unsecured, or trade, creditors.
Anything exceeding that would be divided as follows: 50% to unsecured creditors, 25% to Ames, and 25% to bondholders. she said.
"Ames is trying to do what is best for its creditors." Priest said.
In other news yesterday, the News Corp. Ltd. priced its global equity offering, clearing the way for its $1 billion junk bond issue.
The three-part issue consists of $200 million of senior notes due 1999, $600 million of senior debentures due 2004, and $200 million of senior debentures due 2012.
The bond offering is expected today or tomorrow, a source familiar with it said.
The equity deal consists of 40 million ordinary shares, including 18 million ordinary shares represented by American depository shares and offered in the United States and Canada.
The ordinary shares were being offered at (Australian) $24.10 a share, while the ADS were being offered at U.S. $34.834, each for a total of about $697 million. Underwriters also have the option to acquire up to an additional 6 million ordinary shares. News Corp. will use proceeds to repay bank debt.
Elsewhere, Hadson Corp. expects to file a pre-packaged Chapter 11 bankruptcy plan as early as today, according to J. Michael Adcock, the company's president and chief executive officer.
Hadson said holders representing 68.9% of the $30 million principal amount of its outstanding 7 3/4% convertible subordinated debentures voted. Of those, 80.6% in principal amount and 74.4% in number voted to approve the plan. Common stock holders representing 57.3% of Hadson's outstanding shares voted and 96.3% voted to accept the plan.
Also, Prudential Insurance Company of America and some of its affiliates hat together hold all of Hadson's senior secured debt, voted to approve the plan. That outstanding privately placed senior secured debt totals about $89 million, Adcock said.
Based in Oklahoma City, Okla., Hadson is an independent producer and supplier of energy products and services.
In secondary trading, high-yield bonds finished flat to up 1/4, with some issues finishing as much as 1/2 point higher. High-grade prices finished unchanged to up slightly. traders said.
Valhi Inc. issued $329.6 million face amount of senior secured liquid yield option notes due 2007. Noncallable for five years, the 9.25% LYONS were priced at 257.59. They are convertible into common stock at $7.14, a 12% conversion premium over Tuesday's closing stock price. Merrill Lynch & Co. sole managed the offering. Moody's rates the LYONS B1, while Standard & Poor's rates them B.
Countrywide Funding issued $200 million of 8.25% subordinated notes due 2002 at par. The noncallable notes were priced to yield 169 basis points over comparable Treasuries. Moody's rates the offering Baa3, while Standard & Poor's rates it A-minus. Salomon Brothers lead managed the offering.
Federal Home Loan Banks issued $200 million of 4.625% notes due 1995 at par. The noncallable notes were priced to yield 13 basis points over comparable Treasuries. Merrill Lynch managed the offering.
Merrill Lynch & Co. issued $100 million of 5.25% notes due 1995. The noncallable notes were priced at 99.85 to yield 5.305% or 80 basis points over comparable Treasuries. Moody's rates the offering A1, while Standard & Poor's rates it A-plus.