Lucky to Close Gemco, Sell Assets to Dayton Hudson
Lucky Stores Inc. announced a major restructuring Thursday that includes closure of its Gemco stores by year’s end and the sale of “a major portion” of the stores to Minneapolis-based Target Stores.
Proceeds of the Gemco transaction are estimated to exceed $700 million with net proceeds of about $450 million, said Lucky chairman and chief executive officer John M. Lillie. The Lucky board authorized the sale.
Target Stores, the discount department store unit of Dayton Hudson Corp., said it is paying Lucky Stores $374 million and assuming certain lease obligations.
The announcement came three days after Lucky rejected a $1.79-billion takeover offer from New York investor Asher B. Edelman.
Lillie said the action will enable Lucky Stores to to focus on its core food business.
“The program involves the redeployment of substantial assets and is designed to enhance the company’s value to all shareholders,” he said in a press release.
He said Gemco “has been under earnings pressure for the past few years. Due in large part to changing market conditions, it has not been able to achieve adequate returns.”
Lucky, one of the nation’s largest food retailers, operates 1,468 retail stores, including Lucky and Food Basket in Southern California. The company’s other operations include Kragen Auto Parts stores, Hancock and Minnesota fabric outlets and Yellow Front specialty stores. It has distribution centers in Buena Park and Irvine, and between 25,000 and 30,000 of its 68,000 employees work in the Southland.
Lillie said the Dublin-based chain will help its employees in the transition.
“As a result of the restructuring, Lucky Stores will be able to concentrate its resources and energies on its core food business, thereby assuring that our company becomes even more efficient and competitive over the long term,” said Lillie. “The record of our core food business, with a sales base of over $6 billion, makes it one of the premier food companies in the country.”
Target said it plans to substantially remodel as many as 54 buildings on the Gemco sites and open them as new Target stores.
“We believe this is a strategically excellent step for Target, one with significant long-term value,” said Kenneth A. Macke, chairman and chief executive officer of Dayton Hudson. “It will take Target into Northern California, including the San Francisco Bay area, a move that complements its highly successful expansion into Southern California.”
Target Stores is the largest of Dayton Hudson’s operating companies, with annual revenues in excess of $4 billion. It operates 247 stores in 22 states in the Midwest, Southwest and West.
The company entered the California and Arizona markets in 1983 with 32 locations, and now operates 47 stores in those states, including 37 in California.
When rumors of the impending acquisition by Target surfaced earlier in the week, leaders of Gemco’s union work force reacted emotionally.
“At this point, we don’t know what’s happening,” said Norman Bell, secretary-treasurer of the United Food & Commercial Workers Local 135, which represents 1,500 workers at eight Gemcos in San Diego County.
Nonetheless, Bell said he and his fellow labor leaders would strongly oppose any massive layoffs.
“We’re not going to just lie down and be destroyed,” he said. The workers “have a right to employment. They have a right to expect that when they’ve given . . . their blood and their sweat to the company, they should continue to have employment.”
On Wednesday, Bell’s union sent its 12,000 San Diego members a three-page letter outlining what might happen if Gemco is sold. The letter also addressed the still uncertain status of employees at Safeway Stores, which was recently sold to an investor group in a leveraged buyout.
The union expressed frustration at the lack of information from Lucky and Safeway. “We’re doing everything we can to let the people know what the ramifications are,” Bell said. Union officials will meet with Lucky executives today or Friday, Bell said, to “find out what direction they’re going.”
Bell has done battle in the past with Target, which in 1982 leased 33 former FedMart locations, including eight in San Diego. After being shut for about nine months for remodeling, the San Diego stores were reopened under the Target name with 2,200 non-union employees, prompting a “Boycott Target” campaign by Bell’s union.
