Stater Bros. Battle Grows Murkier : Garrett Family Says It Has Option to Boost Stake to 75%

The fight for control of the Stater Bros. grocery chain grew even murkier Tuesday as the children of company Chairman Bernard Garrett said they are hiking their stake in Stater to more than 75% of the outstanding shares by exercising an option to buy most of their opponents’ holdings.

But suspended President Jack H. Brown, who heads the opposition, called the Garrett family’s claim “bizarre” and “ridiculous,” adding that his investor group still owns its more than 1.7 million shares.

Garrett and Brown lead investor groups that are headed for a showdown at the company’s April 28 annual meeting. Each of the former allies has proposed a three-man slate of directors, and the winner will control the Colton-based company’s board of nine directors.

The latest dispute in the bitter battle stems from an agreement reached Friday between Brown’s group, La Cadena Investments, and Compton-based Craig Corp., which owns 5.6% of Stater’s stock.

Craig agreed to vote its shares with La Cadena, giving the two combined holdings of 49.5%. Previously, the opposing groups were closely matched in their Stater stock holdings, with trusts for Garrett’s children, Mitchel and Lisa, owning 38.7% of Stater’s stock, while La Cadena said it owned 43.9%.

In the agreement announced Friday, La Cadena and Craig also said that if their combined holdings represent “control” of Stater Bros., they intend to hold equal numbers of shares of Stater’s common stock through several possible transactions, including the purchase of more Stater stock or the transfer of some of La Cadena’s holdings to Craig.

Agreement Last September

The Garretts contend that La Cadena’s pact with Craig triggered their option to buy slightly more than 1.5 million of La Cadena’s holdings in Stater granted in an agreement last September between the Garretts and La Cadena. The September agreement prohibits one group from selling its shares or transferring any right to its shares without first offering those shares to the other group, Mitchel Garrett said.

The Garretts notified La Cadena on Monday that they are exercising their option and delivered a $1-million option fee, Garrett said. A lawsuit was filed Tuesday in Los Angeles Superior Court against La Cadena and Craig to force La Cadena to sell the shares, Garrett said.

Brown, in a statement, said La Cadena has made no decision about transferring any Stater Bros. shares to Craig and wouldn’t transfer any shares that are subject to the Garretts’ first refusal rights.

The agreement with Craig also doesn’t transfer rights to any shares, said John Avery, a lawyer representing La Cadena. In addition, the Brown group disputes whether transferring rights to the shares would automatically allow the Garretts to buy the shares, he said.

The trouble at Stater Bros. surfaced in February when Brown was suspended as president and the company filed suit against him, alleging that he manipulated earnings reports to buy stock at low prices. Brown denied the charges and launched a proxy fight to put three men selected by La Cadena on the Stater board.

The battle escalated as the two sides traded accusations and lawsuits. Brown’s group held an annual meeting in March that Garrett’s group said was illegal. And Garrett offered to buy out the Stater stockholders for $20 per share, made upof an undetermined amount of cash and securities.