American Stores Raises Lucky Bid, Asks Quick Reply : $2.5-Billion Offer by Parent of Alpha Beta Tops Price Already Accepted From Gibbons Green

The battle for Lucky Stores flared up again Tuesday when the owner of the Alpha Beta supermarket increased its takeover offer to $2.5 billion.

The new bid tops a $2.4-billion buyout offer Lucky has accepted from an investment firm in an effort to thwart an unwanted takeover by Salt Lake City-based American Stores, owner of Alpha Beta.

In a letter to Lucky’s board, American Stores Chairman L. S. Skaggs raised his company’s cash offer to $65 a share, up from the $45 offered on March 22. Skaggs pressed Lucky for a quick response, saying he wants a merger agreement signed no later than Friday.

Industry analysts said American’s most recent bid is generous to say the least. “It’s a very lofty price as far as I’m concerned,” said supermarket industry analyst Edward F. Comeau at Wood Gundy, a brokerage firm. “Lucky did a superb job in ensuring” that stockholders got the highest price possible, he said.

Board Examining Proposal

“I didn’t think it would be this high,” said Jonathan H. Ziegler, an industry analyst at Sutro & Co., a brokerage firm. “I guess he really wants this property,” Ziegler said of Skaggs. “He sees a lot of potential in it.”

Lucky said its board, together with its independent financial and legal advisers, will review American Stores’ new offer and respond shortly.

Executives at Gibbons, Green, van Amerongen--the investment firm that agreed to buy Lucky for $61 a share or $2.4 billion--were not available for comment. The firm had proposed purchasing Lucky in a leveraged buyout. Under such an acquisition, Lucky would have been pledged as collateral to secure loans for the takeover.

American made its sweetened bid, which expires June 1, after reviewing confidential financial information Lucky had provided earlier this month. In return for that information, American had agreed to top the Gibbons Green offer by Tuesday or end its takeover effort.

Comeau at Wood Gundy said Gibbons Green would be hard-pressed to raise its offer. “Any price that (Gibbons Green) could bring, American Stores could have topped,” Comeau said. Comeau said American Stores would be able to obtain financing at lower rates than the investment firm and would benefit from the cost savings and increasing marketing strength of a combined Lucky-Alpha Beta.

American Stores, which is ranked as the nation’s third-largest food and drug retailer, has said it would merge its 240-store Alpha Beta chain under the Lucky’s name. Lucky’s management, considered by industry analyst as the superior of the two chains, would run the combined operation. Lucky has 340 stores in California.

Keeping Lucky’s current management is apparently important to Skaggs. In his letter, Skaggs said: “We view Lucky’s management as vital ingredient to the combination of the two companies. We are prepared to enter into an incentive compensation arrangement with selected key management personnel which, we believe, would provide very attractive rewards to them for contributing to the success of the combined company.”

How successful the new, larger Lucky’s would be depends on how much debt American Stores takes on to finance the acquisition, Comeau says. Lucky’s strategy and image as the everyday low price leader was based “on a low-cost structure,” Comeau said. “To do that you need financial flexibility. This (takeover debt) would limit them to some degree.”