Thrifty Discussing Possible Merger With NYSE Firm
Thrifty Corp. briefly halted trading in its stock Tuesday to announce that it was discussing a stock merger with a “major New York Stock Exchange company” and that it might make a statement late today.
Analysts expressed surprise at the turn of events and were hard put to agree on a logical merger partner for the Los Angeles-based company, which operates California’s largest chain of drug and discount stores as well as Big 5 sporting goods stores.
However, speculation centered on K mart, the nation’s second-largest retailer, which bought the Pay Less Drug Northwest chain in 1985 and reportedly is interested in expanding it, and on Safeway Stores, the nation’s largest supermarket operator. K mart is based in Troy, Mich., Pay Less Drug Northwest in Wilsonville, Ore., and Safeway in Oakland.
After resuming trading Tuesday, Thrifty stock closed up $5.50 a share at $37.50, with nearly 700,000 shares trading hands. Safeway rose 50 cents a share to $44.75 on volume of 466,200 shares. K mart fell 37 1/2 cents a share to $51.75 on volume of 718,200.
Cash May Not Be Motive
“I don’t think I know what the motivation is behind the merger,” said Sarah A. Stack, an analyst with the Los Angeles brokerage of Bateman Eichler, Hill Richards. “Thrifty has been able to fund its own growth over the years and has borrowing power.
“If it’s a stock-for-stock merger, that means . . . the motivation (of executives) is not to cash out their positions.”
Hugh Denison, an analyst with Milwaukee Co. in Milwaukee, said: “I believed that the company would prefer to remain independent. Indications today are that that will not be.”
Denison added: “All things being equal, I’d rather see it remain independent (because) it’s one of the best-run . . . drugstore companies in the country.”
Stack noted that Thrifty would be attractive to a buyer for several reasons: It has a mass-marketing distribution network in the nation’s No. 1 market for 555 Thrifty drug and discount stores, 28 Thrifty Jr. stores and 90 Big 5 sporting goods stores. In addition, she said, it has name recognition and, with American Stores’ Sav-On, is the dominant force in discount drugs in Los Angeles.
In addition, Thrifty is a partner with Dart Drug of Landover, Md., in two other ventures--the 187-store Crown Books chain, in which each company holds a 34% share, and the 71-store Trak Auto West chain, in which each has a half-interest.
At the end of 1985, Thrifty, with 20 million shares outstanding, had a book value of $8.34 a share. As of last Jan. 31, an employee stock ownership plan held more than 29% of the outstanding shares, and insiders and their families owned about 21%.
For the year ended Aug. 31, 1985, the company had net income of nearly $32 million on sales of $1.4 billion.
Thrifty started as a wholesaler in 1919 but quickly became a discounter with a drugstore on South Broadway in downtown Los Angeles. Under Chairman Leonard H. Straus, the company started developing superstores in the 1950s. Early on, Straus took a conservative approach to using debt to fund growth.
He has told analysts that the company is reaching only 50% of potential California customers within current trading areas and hopes to capture some of the rest with its Thrifty Jr. stores, which are one-third the size of Thrifty’s superstores.
Wouldn’t Elaborate
On Tuesday, Straus would not go beyond the material contained in a brief statement. A K mart spokeswoman, asked whether it was bidding for Thrifty, said: “It’s a rumor as far as we’re concerned.”
In Oakland, Harry D. Sunderland, Safeway Stores executive vice president and chief financial officer, said: “There are no activities occurring within the company which would precipitate the irregular trading pattern” in Safeway’s stock.
His carefully worded statement left open the possibility that the company is aware of some external activity that is affecting the stock’s price. But Sunderland said “no comment” when asked whether the company had been approached about a possible merger or acquisition.
He also replied “no comment” when asked whether management was considering a leveraged buyout. The response was similar when he was asked about Thrifty.
Dart Group, Belzbergs
Outside directors of Safeway were also keeping their counsel. Director Brayton Wilbur Jr., executive vice president of Wilbur-Ellis Co., referred all questions to Sunderland. “It’s the only way we can prevent chaos from creeping in,” he said.
Among those rumored to be accumulating Safeway stock are Dart Group, which consists primarily of the Dart Drug chain, and the Belzberg family of Canada.
The identity of Thrifty’s potential merger partner proved to be a mystery even to analysts who follow the company routinely. Asked whether Safeway was a logical prospect, Jonathan H. Ziegler of Sutro & Co. in San Francisco said: “That’s funny. I started the Safeway rumor this morning.”
Times staff writer Victor Zonana in San Francisco contributed to this story.
THRIFTY AT A GLANCE
Thrifty operates 555 Thrifty drug and discount stores; 28 Thrifty Jr. stores; 90 Big 5 sporting goods stores; 187 Crown Books stores (34% owned); 71 Trak Auto Parts stores (50% owned).
1985 1984 1983 SALES (in billions) $1.41 $1.30 $1.19 NET INCOME (in millions) $31.9 $27.9 $22.5
Assets: 504.6 million.
Employees: 14,000
Shares outstanding: 20.1 million
12-month price range (NYSE): $18.125 -- $37.50
Tuesday close: $37.50, up $5.50
