Dart Group Cuts Last Safeway Ties--for $59 Million
Dart Group, which recently abandoned its hostile takeover attempt of Safeway Stores after being bested by another suitor, said Tuesday that it has agreed to cut its last ties to the Oakland-based company for $59 million.
Dart surrendered its last Safeway interests after failing to reach an agreement to buy some of the company’s assets, a Dart spokesman said.
“They would have liked to acquire the whole company--that’s why they bid for it,” the spokesman said. “But failing that, they didn’t find any pieces of sufficient interest.”
Dart already was expected to make an $80-million profit on the sale of its 5.9% stake in Safeway as part of the $4.1-billion leveraged buyout by the Kohlberg Kravis Roberts investment banking firm, which will make the $59-milion payment to Dart.
With the help of Kohlberg Kravis, Safeway beat back Dart’s bid to buy the nation’s largest supermarket chain. (In a leveraged buyout, a company is purchased with borrowed money that is repaid with cash generated by company operations or the sale of assets.)
‘Walk Away With $140 Million’
Industry analysts had been skeptical that Dart was interested in buying and running Safeway. Instead, they said, Dart was actually interested in making a big profit on its Safeway holdings.
“They walk away with about $140 million more than they went in with,” said one of these. “That’s not too shabby.”
Dart had agreed to end its hostile takeover in exchange for a chance to buy some Safeway assets as well as an interest in a partnership given the right to buy 20% of Safeway’s future parent, SSI Holdings. Under the agreement, Dart was a limited partner, with a Kohlberg Kravis affiliate as general partner. If Dart had bought any assets, it would have surrendered the partnership interest as part of the purchase price.
But on Tuesday, Dart said it will give back its interest in the partnership and cancel its agreement to negotiate the purchase of Safeway assets.
Dart was said to be primarily interested in Safeway’s Liquor Barn division and its grocery store operations in the Washington area and in Richmond, Va.
But after examining those divisions, said a source close to the negotiations, Dart decided not to buy them because of concern that public perception of the liquor industry is becoming negative and because a price war had eroded the profit potential of the grocery stores.
A Kohlberg Kravis spokesman confirmed that the agreement had been reached but declined further comment. A Safeway spokeswoman said the company is “pleased” by the agreement.
