Dart Agrees to Drop Its Hostile Bid for Safeway : May Get Stake in Firm or Chance to Buy Some of Grocery Chain’s Assets
Dart Group, the company that drove Safeway Stores into the arms of another suitor, said Thursday that it has agreed to abandon its hostile takeover bid for the nation’s largest supermarket chain.
In return, Dart will get a possible future stake in the company or the chance to buy some of Safeway’s assets as well as an estimated $80-million profit on its Safeway holdings.
Dart’s surrender clears the way for Safeway to be taken private by the New York investment banking firm of Kohlberg Kravis Roberts & Co. for an estimated $4.1 billion in cash and securities. The deal also effectively insulates Safeway from any attempt by Dart to use its new potential stake in Safeway to control it.
Thursday’s agreement and the takeover battle also appear to somewhat rehabilitate the reputation of the Haft family of Washington, which controls Dart Group, owner of Trak Auto and Crown Books.
Persevered With Bid
The Hafts originally were thought by many to be more interested in profiting from their stock dealings than in actually running Safeway. But they persevered until bested by another bidder, in the meantime making a hefty profit for themselves and other shareholders.
“We will be working with Safeway management and employees to effect a smooth transition of ownership, and we look forward to Safeway’s future as an independent company that will continue to provide its customers with superior quality, service and value,” a Kohlberg Kravis spokesman said.
For its part, Safeway is “very pleased with this outcome,” a spokeswoman said.
A spokesman for Dart declined to comment on why the company abandoned its bid.
Under the agreement, a product of three days of intensive bargaining, Dart will support the proposed takeover of Safeway by SSI Holdings, a new corporation formed by Kohlberg Kravis. The Kohlberg Kravis deal was announced Sunday.
In exchange, Dart would get the right to buy 20% of SSI if it ever trades publicly, but Dart would remain only a limited partner in such an arrangement. An affiliate of Kohlberg Kravis would be the general partner in the group that would buy the 20% stake, and usually the general partner controls the partnership.
In addition, Kohlberg Kravis and Dart said they are still trying to work out an agreement under which Dart would buy some of Safeway’s assets. The assets weren’t identified, but Dart said the talks involve “several divisions.”
If Dart buys the assets, it would have to give up its interest in the partnership as part of the purchase price.
Several lawsuits between Dart and Safeway are expected to be dismissed, the Dart spokesman said.
The Kohlberg Kravis spokesman said the company anticipates “moving rapidly toward a conclusion of the transaction by commencing our offer” to buy up to 45 million Safeway shares, or 73% of the company’s outstanding stock, at $69 per share.
The tender offer must be launched today or the agreement with Safeway would be terminated.
The merger will be completed by exchanging debt valued at $61.60 per share for each remaining share of Safeway’s 61 million shares outstanding. Those shareholders also would get one warrant per share to buy SSI stock if it trades publicly.
Dart had mounted a hostile $58-per-share offer to buy Safeway. Dart then proposed a friendly merger at $64 per share.
Dart Group, which previously made unsuccessful bids for May Department Stores, Jack Eckerd Corp. and Revco D.S., surprised some analysts by its relentless pursuit of Safeway.
Many analysts believed that Dart was less interested in owning Safeway than in getting “greenmail"--selling stock back to the target company at a premium to settle a takeover attempt.
“They didn’t deliberately go after greenmail, and they forced a higher bid,” said Bill Gibson, senior investment analyst with Sutro & Co. of San Francisco. “This series of events would not have happened without them,” he said.
Although the Hafts avoided taking greenmail, they still stand to make a profit, estimated at $80 million after they pay lawyer fees and other takeover expenses. Dart owns about 5.9% of Safeway’s stock, which they will tender to Kohlberg Kravis along with the other shareholders.
“They’ve made a lot of money for themselves and a lot for other people, so that certainly enhances their reputation,” said Albert M. Klein, director of research for the Edward A. Viner securities firm in New York.
“Now they can decide if they really want to go after someone else, as they say they want to do,” he said. “They say they want to get a big retail operation.”
Analysts also pointed out that the deal will leave Safeway heavily burdened with debt that would force it to sell operations or curtail expansion.
Gibson speculated that Dart might be interested in buying Safeway’s discount Liquor Barn business, which would complement its other discount operations. Safeway also has a strong grocery business in Washington, which would be convenient to Dart’s Landover, Md., headquarters.