Move May Help Deter Suitor : Lucky to Use Gemco Proceeds to Buy Some of Its Own Stock
Lucky Stores, which announced Thursday that it would close its Gemco discount department store chain and sell its locations to other retailers, said Friday that it would use the money it gets from the sale to repurchase some of its stock.
The company said it will spend $450 million to repurchase up to 22% of its common shares as part of a massive corporate restructuring apparently designed to deter a takeover bid from New York investor Asher B. Edelman.
Lucky said it will offer $40 a share for up to 11.25 million shares in an effort to top the $1.78-billion, or $35-a-share, takeover bid from Edelman, who owns 10% of the company’s stock.
The company, based in Dublin, Calif., said Thursday that it will close its 80 Gemco discount stores by the end of the year and sell 54 of them for $374 million to Dayton Hudson. The Gemco shutdown will leave the chain’s 14,000 employees, including 9,000 in Southern California, without jobs.
Dayton Hudson said that sometime in the middle of next year it plans to reopen the 54 stores as Target discount stores. Meanwhile, Lucky is trying to sell its 26 remaining Gemco locations. In all, it predicted a $450-million after-tax profit from the sale of Buena Park-based Gemco.
Lucky said Friday that the food operations in its Gemco stores will close a week from Sunday and that it will begin liquidation sales in other departments after that.
Lucky, which operates 575 supermarkets--including the Lucky chain in Los Angeles and Orange counties--said its restructuring plans include the sale of its three specialty store chains.
“Our board believes it is important to get back to our core (supermarket) business,” said Lucky spokeswoman Judith Decker. “Certainly, actions by Mr. Edelman influenced our timing.”
In 1985, Lucky derived 53% of pretax earnings of $148.1 million from its food business.
Analysts said Lucky apparently wants to raise the price of its shares to make them too expensive for Edelman to buy. On Friday, however, the price of Lucky shares slid for the second consecutive day. Lucky shares closed at $35.125, down $1.375, on the New York Stock Exchange, where it was the third most actively traded issue.
David V. Jackson, a retail analyst with the Morgan, Olmstead, Kennedy & Gardner investment firm in Los Angeles, said Lucky’s stock fell because not all Lucky shareholders will benefit from the repurchase.
In a telephone interview from his New York office, Edelman suggested that his fight for the company isn’t over. Lucky’s plan to repurchase shares “is forcing down the stock price. That’s bad for shareholders but good for me,” he said.
Lucky said it plans to launch a tender offer for up to 8 million shares next week and a second tender offer for up to 3.25 million shares after the Gemco sale is completed.
Meanwhile, union leaders held discussions with Lucky executives on Friday over the effects of closing the Gemco stores. “We’re taking a look at seniority, severance pay and other issues,” said David Barry, international vice president and director of Region 15 of the United Food and Commercial Workers, which represents 13,000 Gemco workers.
Barry called the demise of Gemco “a catastrophe” and blamed it on Edelman. “This is what happens when someone tries to take over a company. Thousands of people lose jobs and a few get rich.” He said workers don’t blame Lucky for selling Gemco, which lost $28.1 million for the six months that ended Aug. 3. “Lucky had to defend itself,” he said.
Decker said Lucky might find jobs for Gemco workers in other Lucky divisions, “but it will be impossible to place 14,000 of them,” she said.
Target said it is buying Gemco stores in these Los Angeles area locations: Carson, Cerritos, Gardena, Granada Hills, La Mirada, Long Beach, North Hollywood, Northridge, Pacoima, San Gabriel, Woodland Hills, Riverside, San Bernardino and Indio. It is also buying these Gemco stores in Orange County: Santa Ana, Mission Viejo and in Fullerton on Yorba Linda Boulevard.
