$2.8-Million Paid in Standstill Agreement : Edelman to Halt His Courtship of Lucky

After months of fending off suitor Asher B. Edelman, Lucky Stores said Friday that it has reached an agreement with the New York investor that settles all disputes between them and prohibits him from attempting to gain control for three years.

Under the so-called standstill agreement, the Dublin, Calif., supermarket company will pay Edelman’s investor group $2.8 million to cover legal and other expenses. In return, Edelman’s group has agreed to limit holdings in Lucky to less than 5% and to drop all pending litigation.

“This agreement serves the interests of Lucky stockholders by avoiding the significant cost of continued litigation and the accompanying demands on management time,” Lucky Chairman John M. Lillie, 50, said in a statement.

Edelman, 47, made his first play for Lucky late last September, bidding $35 a share, or about $1.75 billion, for the company. In response to his hostile takeover bid, Lucky devised a large-scale restructuring that entailed selling off its money-losing, 80-store Gemco division and two specialty store units, plus the spinning off to shareholders of the profitable Hancock Textile division.

In December, the company also won shareholder approval to reincorporate in Delaware and buy back 27% of its common stock for $40 a share.

The company said the moves are designed to increase shareholder value and get it back to its core food business--Lucky and Food Basket supermarkets in California, as well as chains in the Midwest and Florida.

Edelman Persisted

Throughout Lucky’s maneuvering, Edelman persisted--sweetening his offer to $37 a share and vowing not to give up the chase despite the supermarket’s rejections of all his overtures. He filed suit to block the restructuring and last month said he had talked with other investors about a possible joint bid for Lucky.

Kenneth W. Cope, the stores’ senior vice president of administration, said the agreement was initiated by Edelman only recently and “came together fairly quickly.”

He added that the stock has been active of late, an indication that Edelman might already have sold some of his 5.4% stake.

Cope acknowledged that some observers might consider the payment to Edelman “greenmail”--Wall Street parlance for a premium paid to get rid of a hostile suitor. However, he said, “I don’t feel that’s valid. Typically, greenmail is buying back shares at a price above the market.”

Edelman did prevail on one point about which he has voiced strong opinions--a provision in Lucky’s Delaware charter that limits the voting power of major stockholders. Under the agreement, Lucky must submit to shareholders at a special meeting to be held before Dec. 31 a proposal by Edelman seeking their views on whether the provision should be repealed.

A spokesman for Edelman, reached in New York, said he was out of the country and unavailable for comment.

John B. Kosecoff, an analyst with First Manhattan in New York, praised the agreement. “The $2.8 million looks like a small price to pay,” he said.

Kosecoff recently issued a “buy” recommendation on the stock, saying that sales and earnings trends for the food stores are “outstanding.” He noted that Lucky stores have captured more than 30% of the $1 billion annual sales from defunct Gemco food stores and that fourth-quarter pretax profit margins reached a record 2.3%.