Garrett Offers Buy-Out of Stater Bros.
A fight for control of the Stater Bros. grocery chain escalated Monday as Chairman Bernard R. Garrett offered to buy the Colton-based company for $20 per share, and the company’s suspended president sought to block management from gathering votes for its slate of directors.
The total value of Garrett’s proposed deal would be $83.5 million, but Garrett would actually have to pay only about $51 million because trusts for his children own 38.72% of Stater Bros. stock.
The proposal comes in the midst of a bitter battle between two groups of inside investors--one led by Garrett and the other headed by suspended President Jack H. Brown--for control of the company, which operates 94 supermarkets in Southern California.
The two groups had joined in 1983 to buy Stater Bros. from Petrolane through a leveraged buy-out. The company went public last November.
Garrett’s offer, which is being reviewed by the Stater Bros. board, presumably would strengthen his position going into the company’s April 28 annual meeting, at which three directors will be elected.
Trouble became apparent in February when the company suspended Brown as president and chief executive and filed suit against him, accusing him of manipulating earnings reports so that he could buy stock at depressed prices.
Brown has vehemently denied the charges. He filed a countersuit Monday seeking to bar Stater Bros. from gathering votes for its three directors using proxy materials that he contends violate federal securities laws.
Brown’s group, called La Cardena Investments, has proposed its own slate of three directors. La Cardena owns 41.07% of Stater Bros. stock.
Under Garrett’s proposed leveraged buy-out of Stater Bros., shareholders would receive $20, of which at least $10 would be in cash, for each share of Stater Bros. common stock. The remainder, which is still being determined, would be in marketable securities, Garrett said in an interview.
In a leveraged buy-out, a firm is purchased with funds borrowed against the assets of the company. Garrett’s offer is subject to shareholder approval.
Garrett said he is negotiating with several U.S. banks to raise the cash portion of the offer. In addition, he said he is negotiating with an unnamed investment banking firm to sell so-called junk bonds--high-yield, low-rated securities--to provide cash for the buy-out.
Garrett said he offered to buy Stater Bros. to clear up uncertainty for the company’s shareholders caused by the proxy fight.
“It’s just confused the hell out of everybody, and I feel that the way to settle the whole thing is to just take back the whole company,” Garrett said.
Brown said that he hasn’t seen Garrett’s offer but that “as a director, I have a responsibility to represent the public shareholders, and I will certainly carry out that fiduciary responsibility.”
However, Brown added that Garrett, by making the offer, is “taking advantage of his position as chairman of the board, a board of which he controls seven of the nine directors.”
One source familiar with Stater Bros. called the offer “a nice way to break the deadlock” between “two 40% Goliaths hating each other.”
Brown said that he and Garrett had a falling out after Brown learned of Garrett’s involvement with six companies that filed for bankruptcy court protection. Brown subsequently opposed management’s slate of directors that he said “looked like it was hand-picked” by Garrett.