Rivals Eye Possible Sale of Safeway’s Southland Outlets

As the buyout of Safeway Stores, the nation’s largest supermarket chain, moves toward completion next month, the changeover is being carefully watched by competitors in the grocery business as well as by the company’s 164,000 workers.

The prospect that Safeway’s new parent company might be interested in selling some or all of its Southern California stores already has others retailers studying the opportunities.

Stater Bros., the grocery chain based in Colton, for instance, has identified at least 12 stores that it might want to purchase and retailing circles are abuzz with rumors that touch on just about every name in groceries.

But completion of the Safeway buyout is still more than a month away, and the chain’s officials say nothing definitive is likely to happen before then. Meanwhile, unions representing Safeway workers have filed a lawsuit trying to stop the entire deal.

“We’re really awaiting word from Safeway that indeed they are interested in selling some (stores),” said Jack H. Brown, head of Stater Bros. “We have identified within our own company about 12 locations we’d be interested in if they become available.

“But we don’t want to add to the rumors until Safeway announces it would consider selling some stores.”

Ralphs Grocery Co., the supermarket chain owned by Federated Department Stores, has been mentioned, for example, as being interested in Safeway’s stores in San Diego. “We haven’t been offered anything from Safeway,” said Chairman Byron Allumbaugh, who acknowledged hearing the rumors himself.

When asked if Ralphs is buying Safeway stores in San Diego, he replied: “Not that I know of.”

Retailers and union officials say other local retailers such as Lucky, have figured in some rumors, as well as some of the out-of-town giants such as Kroger and Jewel Cos.

Bob Bradford, a spokesman for Oakland-based Safeway, said: “Nobody has reached any decision about the stores in San Diego or anywhere. Rumors have been persistent throughout the company because we are going through a leveraged buyout. The merger itself won’t be effective until the end of October, and there won’t be any sales because we couldn’t if we wanted to.”

The corporate changeover from a publicly held company to a private concern continued last week as SSI Holdings announced that it had acquired 73% of Safeway’s stock in a tender offer. That completed the first phase of its $4.25-billion leveraged buyout. SSI Holdings, which was formed by the New York investment firm of Kohlberg Kravis Roberts & Co., will exchange a package of securities for the remaining Safeway shares.

KKR successfully outbid a hostile takeover attempt by Dart Group, owner of Crown Books and Trak Auto. But the deal will leave Safeway heavily in debt. As a result, the supermarket operator is expected to sell some assets to raise cash.

One possible buyer of Safeway stores is Dart Group. As part of its agreement to end its takeover attempt, Dart was granted an option to buy 20% of SSI as well as a chance buy some of Safeway’s assets.

When the agreement was announcement, the parties were trying to work out a purchase by Dart that could involve “several divisions” of Safeway. If Dart buys some divisions of Safeway, however, it apparently would give up its option to buy part of SSI. The New York Times reported at the time that sources said Dart was interested in purchasing as many as 500 Safeway stores, including outlets in the Washington and Los Angeles areas. Dart Group officials have been unavailable for comment.

Safeway operates 2,000 stores nationwide, including 184 in Southern California--Ventura, Los Angeles, Orange and San Diego counties--and 230 in the Washington area.

Rick Icaza, president of the United Food & Commercial Workers Local 770, said the Southern California division employs about 10,000 workers.

The union--concerned about protecting jobs after the transition--recently sued Safeway. It challenged the buyout as a “fraudulent conveyance” or illegal sale because the company would be so loaded with debt that its capital would be reduced to an “unreasonably” small amount.

Icaza said speculation that the Southern California division may be sold is based in part on the knowledge that the area is not one of Safeway’s most profitable groups. In addition, the real estate value of the store properties may be worth more to SSI if they were sold.

“Everything is in flux,” Icaza said.