For the fourth day in a row, the stock of American Stores Inc. gained sharply in heavy trading Thursday on rumors that a corporate restructuring or leveraged buyout is in the works for the Irvine-based food and drug store giant.
American Stores stock jumped $1.875 to close at $64 per share on the New York Stock Exchange Thursday on volume of 231,600 shares. The stock has gained $8 a share since the first of the week.
The company, which operates 2,500 supermarkets and drugstores nationwide, declined to comment on the persistent market speculation.
Analysts, however, said rumors that American could be acquired or is considering a restructuring and sale of assets has been driving up the stock price in recent days.
Until this week, American Stores was trading in a range of $54 to $57 per share, with average daily volume of about 64,000 shares.
Speculation about a sale has persisted since late September, when a federal judge in Los Angeles ruled that American Stores could not combine its Alpha Beta supermarkets with its newly acquired Lucky Stores chain until a federal court decides whether the merger violates federal antitrust laws. That merger has been on hold since September, and the issue is scheduled to be argued in December before the U.S. 9th Circuit Court of Appeals.
Some analysts have speculated that the state's antitrust case against American Stores makes a takeover of the company more likely. American Stores purchased Lucky Stores for $2.5 billion earlier this year, but it has been unable to combine the two chains because of the antitrust lawsuit filed by state Atty. Gen. John K. Van de Kamp.
Others on Wall Street dispute that the stalled merger makes American an easier takeover target. "If they have to unwind the merger, it's going to cost them several hundred million dollars," said a New York securities analyst who asked not to be named. "How does that make them more attractive?"
Some in the investment community said the recent flurry of trading activity may have been spurred by merger activity involving other companies.
A few suggested that it could reflect recent analyst reports--such as one by Robert Raiff of C.J. Lawrence, Morgan, Grenfell that is said to have estimated a value of $130 a share for American Stores. Raiff could not be reached for comment.
Last year, American Stores publicly discussed several possible options--including restructuring, a stock issue or the sale of some portions of the business. But those discussions were before the June, 1988, purchase of Lucky Stores.
The company also was said to have considered spinning off its Osco drugstore holdings last year, but dropped the thought after the Oct. 19, 1987, stock market crash.
American "has a pretty good store base throughout the country. Any way you slice it, I think they're undervalued," said Jonathan Ziegler of Sutro & Co. Ziegler estimates that the value of the company's assets is about $100 a share.
But John Kosecoff, an analyst at First Manhattan Co., said that while American's size and strong cash flow would make it an attractive target, "earnings for this year are likely to be dramatically depressed" compared to a year ago.
Those lower earnings and the potential debt from the Lucky acquisition could dissuade potential suitors, he said.
In another development, attorneys for American said they are pleased with a state Supreme Court ruling Thursday holding that California antitrust law cannot be used against mergers.
The decision came in a case that strikes down Van de Kamp's challenge to the $10.1-billion buyout of Getty Oil Co. by Texaco in 1984.
According to American's attorneys, the ruling could affect Van de Kamp's separate challenge to the merger of Lucky and Alpha Beta supermarkets.
"We're delighted because the Getty-Texaco decision clearly bolsters American Stores' position somewhat," said Stephen M. Axinn of New York, an attorney for American.
Axinn said while he had not yet read Wednesday's ruling, it appears to knock out two claims that the Lucky and Alpha Beta merger violates state antitrust law. "We hope the U.S. 9th Circuit (Court of Appeals) will take the Getty-Texaco decision into account in dismissing Van de Kamp's complaint" against American, Axinn said.
Meanwhile, lawyers with Van de Kamp's office brushed aside the Getty-Texaco ruling, saying the federal court order temporarily halting the Lucky and Alpha Beta merger is based on federal--not state--antitrust laws.
"We certainly hoped it would go the other way," said Andrea Sheridan Ordin, chief assistant attorney general with Van de Kamp's office.