Dart Group said Monday that it is studying Safeway Stores' plan to be sold to Kohlberg Kravis Roberts & Co. and may make a higher offer for the supermarket chain or sue to block the deal.
In a proposal that dealt an apparent setback to Dart's hostile bid for Safeway, the Oakland company announced Sunday that it has agreed to be taken over by the Kohlberg Kravis investment firm for cash and securities worth an estimated $4.1 billion.
A Dart Group spokeswoman said the company is "currently reviewing the (Kohlberg Kravis) offer and will come up with a determination of whether to increase our bid or litigate." Dart, controlled by the Haft family of Washington, owns Crown Books and Trak Auto.
Meanwhile, as Safeway's stock price jumped $4.62 1/2 to close at $66.50, analysts valued the Kohlberg Kravis proposal at $65 to $66 per share, indicating that Wall Street may be expecting a still higher bid for Safeway.
Safeway's stock was the second most active issue on the New York Stock Exchange with more than 5 million shares changing hands.
In the first part of the two-step deal unveiled Sunday, Kohlberg Kravis will "promptly launch a $69-per-share tender offer for up to 45 million shares, or 73%, of Safeway's outstanding stock.
The merger would be completed by exchanging each remaining share for debt valued at $61.60 per share. In addition, shareholders would get warrants to buy common stock of a corporation formed to take over Safeway if that new corporation should ever trade publicly.
Lower Value by Analysts
Safeway didn't put a value on the warrant, but a spokeswoman said the company hopes that the second half of the deal would equal the first half in value, which would make the warrants worth about $7.40 each. When that value for the warrants is added to the deal, the total worth rises to $4.2 billion from the $4.1-billion valuation for the cash and debt alone.
However analysts gave the overall deal a lower value than $69 per share because the debt and stock purchase rights probably will not trade at face value.
"The package is probably worth near the current market price" of Safeway's stock, said Albert M. Klein, an analyst with Edward A. Viner & Co., a New York investment firm. The stock price indicates that "it's still a bidding war, it seems," he said. Either way, Klein said, "it's certainly an attractive price from where it was, and so I think the shareholders should vote (Dart Chairman) Mr. Haft a vote of thanks."
Bill Gibson, senior investment analyst with Sutro & Co., said Dart Group might be content to take its profits and run. An estimated profit of "$80 million is not too bad for the losers," he said.
On July 8, the day before Dart Group launched its $58-per-share hostile tender offer for Safeway, the supermarket chain's stock closed at $53.50. Dart has since offered to pay $64 per share but only if Safeway agreed to a friendly merger.