Edelman Sweetens Bid for Lucky, Hints He May Take a New Tack

Raising his previous buyout offer by $100 million, an “extremely disappointed” Asher B. Edelman now says he’s willing to pay $1.89 billion to acquire Lucky Stores, it was announced late Tuesday.

Lucky, the Dublin, Calif.-based grocery chain that also owns the Gemco discount department stores, said the latest offer from the New York investor is for $37 a share. Edelman’s previous offer was for $35 a share, or about $1.79 billion, based on Lucky’s 51.2 million shares outstanding.

If the latest offer is refused, Edelman warned in a letter to the company, he may wage a proxy fight that could lead to the company’s liquidation.

Though Lucky Stores did not comment directly on the offer, it said in a brief statement that “a meeting of the board of directors will be scheduled to review the proposal.”

The development is the latest in a series of moves in which Lucky Stores has pulled out the stops in an effort to thwart the savvy Edelman. Lucky Stores operates 575 grocery outlets in seven states, including California, and 80 Gemco stores in California, Arizona and Nevada.

Last week, in a broad restructuring move, Lucky said it would close the unprofitable Gemco operations and pay $450 million, or $40 a share, to repurchase up to 22% of its common stock. The company also said it planned to sell 54 of its 80 Gemco stores to Dayton Hudson for $374 million. Dayton Hudson said it will open its Target discount stores at those locations in the middle of next year.

Lucky has said that the remainder of its Gemco stores are for sale, and supermarket chains like Vons and Ralphs are considered possible buyers. However, Lucky Stores Chairman John M. Lillie indicated in a recent memo that Lucky may want to keep some of them.

He said “a number” of Gemco sites in Southern California “will be considered for a new breakthrough store concept.” But a Lucky spokeswoman declined to reveal any details.

Edelman made his plans known in a letter sent to Lillie. According to an account from United Press International, Edelman said he was “extremely disappointed with the terms of the so-called restructuring as publicly announced.” (Edelman could not be reached for further comment.)

“We believe that our proposal represents an alternative which is clearly superior to your restructuring plan and is in the best interests of all shareholders,” Edelman said in his letter.

Analyst Jeffrey Atkin, with the Seattle-based money management firm of Kunath, Karren & Rinne, said he doesn’t think Lucky’s management will go along with the latest proposal. “My gut feeling is no,” Atkin said. “I suspect they’ll fight the offer.”

But Edelman warned that he intends to “pursue one or more courses of action which do not involve negotiation” if Lucky’s board refused to meet with him or rejects his offer.

Among the options, according to the letter, is a tender offer “at a price below that which we are prepared to pay in a negotiated transaction” or a proxy fight to win shareholder approval for the liquidation of the company, according to the UPI report.

Edelman is known as a skilled corporate raider whose dealings with Lucky are characteristic of past ventures. Edelman now owns about 10% of Lucky’s stock.

Though not in the league of some of Wall Street’s celebrated corporate raiders, he says he and his investors have about $600 million in cash and cash equivalents available for acquisitions. By borrowing on that amount, he said in a recent interview with The Times, “we could do a $4-billion deal pretty easily.”

Edelman’s proposal was received well after Lucky’s stock closed on the New York Stock Exchange. The stock gained 12.5 cents a share in composite trading Tuesday to close at $35.25 a share. Lucky Stores has more than 31,000 shareholders, but a majority of its 51.2 million shares is held by institutions, according to Standard & Poor’s.

Meanwhile, Lucky Stores has already set a going-out-of-business sale for the Gemco stores.

The liquidator, Sam Nassi Co., said all Gemco stores will close at the end of the business day on Saturday and reopen Oct. 23 to Gemco members for liquidation sales.

The sales will be open to the general public starting Oct. 26.