Buyout OKd : Safeway Says Closings Hinge on Union Talks
Coming union negotiations may be a factor in deciding which supermarkets Safeway will soon close or sell to other chains, Chairman Peter A. Magowan said Monday after shareholders approved a $4.9-billion buyout of the company.
Safeway plans to ask its employees for ways to lower labor costs, and the union response will be an important factor in deciding what stores it will close or sell to reduce the new company’s heavy debt, Magowan said.
“I think that the employees will have a fair amount to do with what the ultimate disposition will be,” Magowan said during a sparsely attended meeting at which shareholders approved the leveraged buyout of Safeway Stores.
About 83% of shareholders approved the merger of Safeway Stores into Safeway Stores Holdings Corp., a company controlled by the New York investment banking firm of Kohlberg Kravis Roberts & Co., which specializes in leveraged buyouts.
In a leveraged buyout, a company is purchased with borrowed funds that are repaid with cash from company operations or from the sale of assets.
The buyout swelled Safeway’s debt to more than $5.6 billion from $1.5 billion, and the nation’s largest supermarket chain has acknowledged that some operations must be sold to meet its debt obligations.
Safeway executives will meet with representatives of the United Food & Commercial Workers Union in the Bay Area today to discuss divisions where labor costs are too high, Magowan said in an interview.
“Our intention is to discuss with the unions those divisions that are having profitability problems, in our opinion entirely because of the fact that we pay higher labor costs than our competition in several markets that we operate,” Magowan said. He declined to name the cities where Oakland-based Safeway is pushing to lower labor costs.
If Safeway is able to negotiate lower labor costs, “we will be able to hold on to more divisions than we would otherwise,” Magowan said.
The union has been given no hint about what areas of the country Safeway has targeted, union spokesman Al Zach said.
Safeway bargains as a unit together with other grocers, and so in areas where it competes with other unionized stores, labor costs should be comparable, he said. In some areas--Texas, for example--Safeway has more non-union competitors, but “if Safeway were truly uncompetitive, Safeway would have gotten out of (those areas) a long time ago,” he said.
“If it’s possible to save jobs without destroying the living standard of our members, we’ll be willing to discuss it,” Zach said. “It’s been a long, very scary process for Safeway employees.
“It was not Safeway employees that entered into an agreement that led to a four-fold increase in Safeway’s debt, which has a greater bottom-line impact than all the UFCW negotiations for the past decade,” Zach said.
