Vons, Detroit Supermarket Chain Call Off Their Proposed Merger

Vons Grocery, which routinely runs neck-and-neck with Ralphs for top spot among Southern California market chains, and Allied Supermarkets, a major Detroit food marketer, Thursday called off their proposed $660-million merger.

The companies issued a terse statement saying they had terminated a letter of intent announced just a month ago.

“We agreed not to go forward; we got engaged and decided not to get married,” said David K. Page, chairman and chief executive of Allied. He declined to discuss the specific reasons for the deal’s collapse, saying: “When you sign a letter of intent, there are a thousand things you have to do and issues you have to resolve before you reach a definitive agreement. You discover that certain issues are more difficult to resolve than you thought.”

At Vons in El Monte, Michael F. Henn, a senior vice president and chief financial officer, said the decision was made at a Vons board meeting Wednesday night in Chicago after completion of the so-called due diligence process, in which companies scrutinize a deal’s financial merits.

“At the conclusion, we weighed the facts and reviewed the deal again and decided not to proceed,” Henn said.

Henn added that Vons, which operates 190 supermarkets and drugstore outlets, mostly in California and Nevada, has no other acquisitions in mind. On the other hand, Page said Allied, with 23 supermarkets and a wholesale grocery company, has more than $100 million in cash that it plans to use for acquisitions.

Vons was to have filed documents pertaining to the merger with the Securities and Exchange Commission in Washington by Oct. 15, but Vons Chairman Roger M. Stangeland indicated earlier this month that the preparation was taking longer than expected.

Industry observers speculated that Household International, Vons’ former parent and holder of a 10% stake in the company, was not pleased with the Allied deal. Vons converted to private ownership in January after Stangeland and other investors arranged a leveraged buyout from Household.

The nature of the Vons-Allied deal had puzzled the supermarket industry. Vons, with about $3 billion in sales for the year ended July 31, is much larger than Allied, with sales of $386 million, but has substantial debt. Allied shareholders would have held two-thirds of the merged company, and both Vons and Allied would have had six board members. “No one was taking anyone over,” Page said in a phone interview Thursday.

Under the agreement with Allied, shareholders of Vons were to receive $160 million from Allied plus 8 million, or 36.4%, of the shares in a new public holding company to be formed by the merger and to be based in El Monte.