Vons to Merge With Michigan Chain, Go Public : Agreement Is Reached for Deal Worth $700 Million With Allied Supermarkets
In a surprise move, Vons Cos. said late Wednesday that it has renewed a plan to become a publicly traded company through a complex merger with a Detroit supermarket chain.
El Monte-based Vons, which operates 190 supermarkets and drugstores in California and Nevada, said it reached a definitive agreement to merge with Allied Supermarkets Inc. in a deal worth $700 million in cash and stock.
As part of the deal, the merged companies would spin off the Michigan company’s only operating assets--its stores in the Detroit area--to their management, thus leaving Vons in control of the Allied corporate “shell,” whose shares are traded on the New York Stock Exchange.
Since 1985, Vons has been owned by a small group of private investors, and company Chairman and Chief Executive Roger E. Stangeland said in a telephone interview Wednesday evening that a top corporate goal has been to recapitalize Vons and take it public “quickly, in one fell swoop” by merging with a publicly traded shell.
Earlier Plan Scrapped
Last October, Vons scrapped an earlier merger plan with Allied. Stangeland said Wednesday that his company had backed out of the original plan because it wasn’t happy with Allied’s determination to remain in the Detroit supermarket business and because “we only want to be a Southern California company.”
Vons was also unhappy with Allied’s operating earnings and the amount of control given to Allied officials under the original agreement, he said.
Under the new agreement, Vons would be merged into Allied, with Vons’ current shareholders receiving $132.1 million cash plus about 13.3 million shares of the newly merged companies. Warburg Pincus Associates L.P., a New York-based limited partnership, will be the largest shareholder of the merged companies, with a stake of about 14%. At present, it is the largest shareholder of Allied, with 28%.
Stangeland will become chairman and chief executive of the merged company, and William S. Davila will be president and chief operating officer. The merged company will be named The Vons Cos. and will maintain its headquarters in El Monte.
The two companies simultaneously entered a second agreement under which an Allied management group, headed by Chairman and Chief Executive David K. Page, will buy all of the Allied operating stores, including its Great Scott! and Family Drug operations and Abner Wolf Wholesale operations in Michigan for about $46 million in cash and debt, plus the assumption of more than $20 million in liabilities.
Stangeland said Allied’s board approved the deal Wednesday, as did Vons’ principal shareholders. As a result of a 1985 leveraged buyout led by Stangeland, the major investors in Vons are the investment firm of Donaldson, Lufkin & Jenrette Securities Corp., a limited partnership controlled by the Bass family of Texas and Equitable Life Assurance.
The deal was resurrected after representatives of Allied and Warburg approached Vons recently, Stangeland said. “They asked if we would be interested again if our problems with the original deal were removed, and we said yes,” he said.
On the New York Stock Exchange, Allied shares closed Wednesday at $7.125, off 12.5 cents.