Safeway Could Use Hafts’ Help but Gets Grief
Safeway Stores, the largest supermarket chain in the United States, happens also to be one of the least profitable. But Safeway management, led by Chairman Peter A. Magowan, has been working in the last six years to improve matters and has some progress to show for its efforts.
So it is understandable that Magowan and company are reacting with frustration and anger to the purchase of a large block of Safeway shares by the Haft family of Landover, Md. Magowan was not amused when he received the Securities and Exchange Commission iling saying that the Hafts had accumulated 5.9% of Safeway’s stock and may want to acquire more. Even though speculation about a takeover has driven Safeway stock to its highest price ever--it closed at $47.87 1/2 on Monday after touching $49 last Friday--Magowan vowed defiance, saying that management would “take all appropriate action to protect the interests of shareholders.”
Questions: Who are the Hafts, what do they want with Safeway and why is Magowan angry that they have bought a lot of his company’s stock?
Unfriendly Shareholders
First, the Hafts. Father Herbert, 66, and son Robert, 33, sold Washington’s Dart Drug chain to its own employees two years ago for $160 million, and they have since used the money to finance what you might call an unfriendly shareholder business. That is, the Hafts--who retain the name Dart Group for their investment vehicle--buy shares in a company, file a statement with the SEC suggesting that they might buy more or all of the stock and watch the stock rise on takeover speculation. Then they sell the stock, sometimes to the company that is the ostensible target--a practice that has been dubbed “greenmail.”
It is a business that profits from perception. Last year, after a foray into the stock of May Department Stores, the Hafts in June bought about 5% of Jack Eckerd Corp., the Florida-based drugstore chain. In July, Eckerd bought the block of 1.9 million shares back in exchange for an agreement that the Hafts wouldn’t buy into the company again.
Had the Hafts threatened Eckerd with some terrible fate? Apparently not.
“We didn’t know their intentions,” an Eckerd Corp. spokesman says. “We anticipated that they were unfriendly.”
The Hafts made roughly $10 million from those transactions last year, and they already have a paper profit of more than $20 million on the 3.6 million shares of Safeway that they began accumulating only a month ago.
Deal Likely
So what happens now? Well, as it is extremely unlikely that the Hafts really want to acquire all of Safeway’s 2,343 stores, it is probable that some kind of deal will be made before long. Safeway, judging from the careful wording of Magowan’s statement, seems not totally opposed to greenmail--”pay the raiders and get rid of them so we can get on with our work” seems to be the sentiment at Safeway’s Oakland headquarters. So the Hafts will go their way, the stock will probably fall a bit and the Safeway managers will continue to struggle with the chain’s anemic profits.
Which is kind of a shame. Because the Hafts, if they did their investing differently, could well have some ideas to offer Safeway. For all their wheeling and dealing, the Hafts know a thing or two about retailing. They made Dart Drug a price-leading discount chain in Washington, and they are not doing badly with Crown Books and Trak Auto, two discount chains that they still control through Dart Group. If, instead of greenmailers, the Hafts acted as long-term investors, a la Lawrence Tisch (with CBS) or Warren Buffett (with Cap Cities/ABC), they could make a contribution--and as the names Tisch and Buffett attest--make a return on their investment, too.
Undeniably, Magowan and his executives could use a few fresh ideas. The chain’s U.S. markets net only an estimated seven-tenths of a penny on each dollar of sales, where the best chains earn more than 2 cents on the dollar.
Management’s efforts to build larger stores and to get competitive on labor costs are laudable. But Safeway all too often gets beaten on sheer merchandising in a business where regional and local chains are the standouts and national outfits such as A&P; and Kroger, as well as Safeway, are the laggards.
Oh, sure, the Hafts’ investment in Safeway will end up as another smart, quick-buck deal, a “victimless crime,” if you will. But we pay a price in missed opportunities when huge sums are invested in this way. It might be done better, and it should be done better.
