American Stores Has $500-Million Spending Plan
American Stores said late Friday that it plans to spend $500 million to build new stores and upgrade existing ones as it takes over rival Lucky Stores.
American also said that it has completed financing arrangements for the $2.5-billion acquisition and acknowledged that it is taking on a “substantial” debt load to acquire the 95.4% of Lucky’s stock that has been received.
American Stores said it will convert its 240 Alpha Beta stores in California to Lucky markets “when feasible,” and stated that the Alpha Beta name will continue “for some time.” It also noted that to satisfy a Federal Trade Commission ruling, it must sell at least 31 stores in California once the merger is completed.
The merger and sales of stores, the company said, will result in a “minimal” number of lost jobs, but the company declined to say how many.
The combination of Lucky, which operates 481 stores in four states, and American, which operates other supermarket chains, will give American nearly 1,600 stores and 130,000 employees in 39 states, making it the nation’s largest supermarket company.
In California, where there will be about 600 stores, American will adopt Lucky’s low-pricing policies for all of the markets, the company said.
The FTC still must give the merger final approval. After that, the Alpha Beta and Lucky marketing and advertising operations will be combined. Later, American will begin dropping the 73-year-old Alpha Beta name. American, now headquartered in Salt Lake City, is moving its offices to Irvine next month. Lucky Chairman John M. Lillie, however, will remain head of what will become the company’s Lucky-Alpha Beta subsidiary, which will be run from Lucky’s headquarters in Northern California.
No date has yet been set for completion of the merger.
The highly leveraged purchase caused two of the nation’s investor service companies, Moody’s and Fitch, to lower their ratings on corporate debt that American Stores has issued. Their actions mean that they view the debt securities as an increasingly risky investment.
“They have to borrow so much money that the additional debt they’re taking on is quite substantial,” said Thomas Harker, a Fitch vice president. “The borrowing makes a substantial difference not only in the leverage ratio but in other things we look at in making our decision.” American would not reveal the amount of the line of credit it has arranged with Morgan Guaranty & Trust in New York. Nor would it comment on the lower ratings issued by Moody’s and Fitch.
Both investor service companies have been reviewing their ratings of previous American Stores debt securities during the past two months of takeover talks.
Moody’s lowered its rating two notches--to Ba1 from Baa2--on industrial bonds and certain notes. And Fitch knocked down its rating almost two steps--to F-3+ from F-1--on commercial paper, essentially short-term corporate notes.
Michael T. Miller, an American Stores vice president, said the acquisition alone was not the reason for the lower debt ratings, though he acknowledged that the acquisition triggered the decisions to lower the ratings.
Once the merger is effected, anyone still owning shares of Lucky Stores will have the right to receive $65 in cash per share, the same price paid in the offer. Miller said that, as with any large company, a number of shareholders no longer can be reached.
Other American Stores chains, including Skaggs and Buttrey markets, Osco Drug and Acme, Jewel and Star markets, will not be renamed, the company said.
