Alpha Beta Parent Firm to Buy Lucky for $2.5 Billion

After a nearly two-month siege, Lucky Stores agreed Friday to a $2.5-billion takeover by the owner of the rival Alpha Beta grocery store chain in a deal that would create perhaps the nation’s largest supermarket company.

As part of the deal, American Stores’ 240 Alpha Beta stores throughout California are expected to adopt the Lucky banner and low-price strategy.

Currently based in Salt Lake City, American Stores plans to relocate its corporate headquarters to Irvine in July.

Elimination of the 73-year-old Alpha Beta name would follow widespread upheaval in the supermarket industry. Safeway is leaving Southern California and selling 172 stores here to Vons. Ralphs Grocery recently was bought by Campeau Corp. as part of that Toronto developer’s takeover of Federated Department Stores, and Boys Markets was sold to a Mexican family. In addition, several food companies, including Lucky’s Gemco operations, Kroger’s Market Basket and FedMart, have folded in recent years.

In some cases, significant layoffs resulted, and observers speculated that many Lucky and Alpha Beta workers will eventually get pink slips as the companies combine operations.

Industry observers and customers were divided on whether the combination will mean higher prices for food shoppers.

“There are two schools of thought on it,” said Edward F. Comeau, an analyst with the investment firm of Wood Gundy Corp. in New York. “But I think the pricing environment in Southern California will be eased for a while.” He said customers can expect to start paying higher prices as the big Southern California food chains begin to pay off the hefty debt loads from their various transactions.

But John B. Kosecoff, an analyst with First Manhattan Co. in New York, views the consolidation as normal. He predicted that consumers will be helped because the combination will strengthen the lackluster Alpha Beta chain and give it the chance to benefit from Lucky’s low-price strategy.

“Lucky Stores has built its success over the last 25 years by maintaining itself as the low-price leader,” he said. “The Alpha Beta operation had its worst performances by being too high priced relative to the competition.”

He noted that American Stores intends to put Lucky’s management in charge of the combined operation. “All indications are that in the near term prices would be brought down for Alpha Beta and that over the long term, management will keep pricing at a competitive level in order to garner market share and avoid creating an opportunity for any new or existing competitor to undercut them,” he added.

Mixed Feelings

Shoppers at an Alpha Beta store in Costa Mesa, two blocks from a Lucky location, also expressed divergent views Friday.

“I like the produce here (at Alpha Beta) and their meat selection, (and) I like Lucky’s prices,” said Shirley Camacho of Costa Mesa, who typically shops at Lucky. “If they merge, it will be the best of both worlds.”

But Jody Myers of Newport Beach, who tends to shop where it is convenient, noted: “I think it’s sort of ominous. It seems to me like a monopoly is going on, and I’m afraid prices are going to go up.”

In a statement, American Stores Chairman L.S. (Sam) Skaggs said the $65-a-share merger should benefit California consumers because “it will produce a stronger company with greater potential for growth and job creation. . . .”

A combination of American Stores, with nearly 1,600 stores and 130,000 employees in 39 states, and Lucky, with 481 stores and 39,000 workers in California, Arizona, Nevada and Florida, would create a giant retailer with more than $21 billion in annual sales. Lucky, the largest food company in California, operates 340 stores in California, including 25 under the Food Basket name in San Diego.

American Stores has said it intends to run the combined operations from Lucky’s current base in the Northern California city of Dublin.

End of Struggle

Even without American Stores’ sales from drugstore operations, including the Sav-on Osco chain, the merged company would likely top Cincinnati-based Kroger, the current food industry leader, analysts have said.

After its relocation, American Stores also will rank as Orange County’s largest publicly held company, with 1987 sales of $14.3 billion. When the move was announced last month, observers said it may reflect the fact that Skaggs has purchased a luxurious home in the Laguna Beach area.

The reshuffling will put American’s headquarters in the same county as Alpha Beta’s home base. Alpha Beta’s headquarters are in Irvine, and its California operations are run from offices in La Habra and Fremont, Calif. Lucky’s Southern California division is based in Buena Park.

By agreeing to the American Stores deal, Lucky ended a valiant struggle to remain independent. The company had recently won Wall Street’s praises for stellar performance since a 1986 reorganization that included the closing of its money-losing Gemco membership department store chain and thwarted a hostile bid by raider Asher B. Edelman.

Ironically, both Lucky and American Stores were engaged in the billion-dollar bidding war for Ralphs at the time American Stores proposed the takeover of Lucky.

In an effort to fend off American Stores, Lucky on April 28 agreed to a $2.4-billion buyout by an investment firm. On Friday, that firm, Gibbons, Green, van Amerongen, with offices in Los Angeles and New York, withdrew its $61-a-share bid.

Lewis W. van Amerongen, a partner, noted that the firm “had encountered a buyer whose strategic interests justified a price beyond that supportable in a management buyout.” Gibbons Green is not going away empty-handed, however. Under its agreement with Lucky, it stands to receive $20 million if the sale to American Stores goes through.

Once American Stores agreed on Tuesday to raise its bid to $65 a share, Wall Street observers figured that Lucky had little option but to go along with the merger. They noted that Lucky’s waiting game had already produced a far healthier price than American Stores’ initial bid of $45 a share, or $1.74 billion.

Many Layoffs Expected

Analysts and food industry executives said the Lucky-Alpha Beta combination could result in layoffs as the two operations merge such departments as advertising and administration.

However, Lucky Chairman John M. Lillie, who will run the combined operation along with Lucky President Lawrence A. Del Santo, said the companies do not see efficiencies “materially coming from staff consolidations, not in the near term.”

“We just don’t want to unnecessarily disrupt our organization,” he said. However, he added, “that doesn’t mean never” for layoffs.

One major question was left unanswered: whether the Federal Trade Commission would perhaps require the combined companies to sell off stores in areas where their operations overlap. A spokesman said the merger is still being studied by the commission for possibly anti-competitive effects.

Times staff writer John Charles Tighe contributed to this report.

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