Investors Await Result of County-Bound American Stores’ Bid to Acquire Lucky
American Stores may be moving to Orange County, but investors want to know whether the grocery giant will get Lucky.
American, owner of the Alpha Beta supermarket chain, confirmed last week that it will relocate its headquarters staff in July from Salt Lake City to Orange County. With $14.3 billion in sales last year, it will become the county’s largest public company.
While the relocation is a point of pride for Orange County, most observers are far more interested in the outcome of American Stores’ pending takeover bid for competitor Lucky Stores.
The company’s financial performance last year was disappointing, and analysts said the proposed acquisition of Lucky could turn its fortunes around.
Besides the 240-store Alpha Beta chain, American Stores operates 150 Sav-on Osco drugstores and supermarket chains in the Chicago, Philadelphia and Boston areas.
$4.19 a Share Earnings
For the fiscal year ending January 30, the company posted earnings of $150.3 million, or $4.19 per share, significantly below analysts’ initial expectations.
In a recent report, First Boston analyst Margaret Gilliam reduced her 1988 earnings estimate from $5.10 a share to $4.80, and other analysts agreed that American Stores appears to be facing another lackluster year.
They also think that Lucky is about to slip out of American Stores’ grasp. Last week, Lucky management accepted a friendly acquisition offer made by Gibbons, Green, van Amerongen, a New York firm that specializes in leveraged buyouts.
Gibbons, Green has offered to pay $61 per share, or $2.4 billion, to acquire all of Lucky Stores’ common stock. American Stores has bid $60 per share for Lucky and indicated last week that it might be willing to up the ante if Lucky can demonstrate why it is worth more.
If American Stores can pull off the acquisition at a price not much higher than the current bidding level, analysts said the combination would create a super supermarket chain.
The acquisition of Lucky, according to analysts, would give American Stores a higher quality image as well as an entrance into new markets.
“If it’s worth $61 per share to the investment group, it should be worth more to American Stores. They would benefit from the synergy of converting Alpha Beta stores to the Lucky name,” said Ronald Rotter, a securities analyst at Morgan, Olmstead Kennedy & Gardner, a Los Angeles brokerage.
“American Stores has never built Alpha Beta into the powerhouse it deserves to be,” said Jonathan Ziegler, of Sutro & Co. in San Francisco. Acquiring Lucky, “would be a bold positive step,” said Ziegler, who noted that the acquisition would expand American Stores’ western base and move it into the growing Florida market.
One of American Stores’ problems has been a perceived decline in its Alpha Beta supermarkets, according to analysts.
“Alpha Beta is not doing well in terms of gaining market share,” said John Kosecoff, an analyst with First Manhattan Co. in New York. “It has not reinvested in its asset base. Some stores need remodeling, others need expanding and still others need to have their location changed. The chain is not popular with consumers.”
The company’s stock price has reflected Wall Street disappointment with the firm and its earnings performance. The stock, which traded as high as $86.25 last year on takeover speculation, fell to a low of $41.50 following the Oct. 19 market crash. American Stores closed Friday at $60.75, down 75 cents for the day.
At its recent levels, Rotter said, the stock probably won’t decline much even if American Stores’ emerges from the current takeover battle with no Lucky at all.
