Safeway May Be Close to Sale to N.Y. Firm

Safeway Stores, thought to be on the verge of selling the company to a New York investment firm, was harshly criticized Friday by jilted Dart Group for secret dealings.

Dart, which has made two offers to buy Safeway, said it was told by a Safeway representative that the company’s directors were gathering Friday to review a bid by an unnamed party.

A Dart official said the buyer is believed to be Kohlberg Kravis Roberts & Co., a New York investment banking firm that specializes in leveraged buyouts. The proposal may include members of Safeway management.

A Kohlberg Kravis spokesman said the company “has a policy of not commenting on rumors like that.” In a leveraged buyout, management often participates in taking a company private using borrowed money that is secured by the company’s own assets.

A Safeway spokeswoman would neither confirm nor deny that the Oakland-based company’s board met Friday to consider a new bidder’s proposal.

In rejecting the lower of Dart’s offers Tuesday, Safeway revealed that it had discussed the possibility of a leveraged buyout with a third party. Safeway said it is also considering restructuring the company by repurchasing up to 30% of its outstanding common stock and selling some assets.

Dart had offered to pay $58 per share for Safeway, then raised its bid to $64 per share. Safeway has not replied publicly to the higher offer except to say that its board wanted more time to consider it.

In a letter to Safeway’s directors, Dart Group Chairman Herbert H. Haft said: “We reiterate our position . . . that we would consider your approval of any third-party transaction, without giving us a chance to compete on an equal basis, to be a gross breach of your fiduciary responsibilities to Safeway shareholders.”