Vons Cos., after a nearly nine-month wait, on Monday won government approval for its $408-million purchase of Safeway’s Southern California food stores, completed the deal and then immediately set about remaking the stores in Vons’ image.
The El Monte company quickly touted the change in radio commercials Monday and said it had instructed workers in the Safeway stores to begin reducing prices on thousands of grocery items to bring them into line with Vons’ pricing.
To satisfy Federal Trade Commission concerns about competition, Vons also completed selling nine Safeway and three Vons stores. The sale of those stores had been ordered in a preliminary approval granted by the FTC last May.
Jonathan H. Ziegler, a supermarket analyst with Sutro & Co. in San Francisco, said the merger “appears to be good for the consumer, and I think it will be good for the company. You’re going to have more Vons names scattered around the neighborhoods. . . . With the traffic congestion in L.A., you need more stores closer by, and this will do that for Vons.”
Some consumer activists and California Atty. Gen. John Van de Kamp had opposed the deal, saying it would drive up grocery prices by lessening competition. But the FTC sided with Vons. “Obviously, the commission feels that the required divestitures will solve the competitive problem,” said FTC spokeswoman Susan Ticknor in Washington.
The mammoth task of merging the Safeway stores and their 11,000 employees into the Vons operation is already under way, with remodelings and upgradings of stores to take place at a cost of several million dollars. Many of the changes will be made over the next four to five weeks.
“We will start shortly painting the interiors of their stores and re-signing and remerchandising,” said Mary M. McAboy, Vons’ director of investor relations. Customers will continue to see the Safeway signs outside the stores until a date to be announced (nicknamed within the company as V-Day), when they will be replaced with fanfare by Vons signs.
In many cases, older Safeway locations will require expensive updating to bring them into line with basic industry technology. For example, scanners--the lasers that “read” prices from the black and white bar codes on grocery products--must be installed at about a dozen stores where cashiers have been manually punching in prices on cash registers.
To accomplish the purchase, initially proposed last December, Vons paid Kohlberg Kravis Roberts & Co., the controlling owner of Safeway, $325 million in cash and 6.76 million shares of Vons common stock plus a note that can be converted into 4.9 million common shares. Those shares together will constitute about 30% of Vons’ outstanding shares. Financing for the deal was provided by Security Pacific National Bank.
With the addition of the Safeway stores, Vons operates more than 350 stores under the names Vons, Tianguis and Pavilions. The combination will give Vons about $5 billion in annual sales.
It also will mean a heavy debt load for the company, and some observers have speculated that Vons will be forced to raise prices to cover interest payments.
Two rival chains--Lucky, with 180 Southland stores, and Alpha Beta, with about 190--await final FTC approval for their merger.