Rumors Cool on Takeover of American

A week ago, Irvine-based supermarket giant American Stores Inc. was caught up in the takeover speculation that was sweeping the entire food industry. But for now, at least, the bubble has burst.

The company’s stock, which closed Friday at $60.125 per share, traded last week up to $66.50--its high for the year--amid waves of rumors and heavy buying that buoyed the whole food sector. Before the rumors, American had been stuck in a range of $54 to $57.

The takeover frenzy, however, cooled off on Thursday. Many traders took profits after Federal Reserve Board Chairman Alan Greenspan proposed that Congress consider imposing a limit on corporate borrowing to finance takeovers.

With a general calming in the market, analysts surmise there is little chance of an American takeover.

Court Decision

The next event likely to move the stock, they said, will be a possible court decision in early December to decide the outcome of American’s plans to merge its Alpha Beta supermarket chain with the Lucky Stores chain it purchased for $2.5 billion.

In August, the Federal Trade Commission approved the merger, provided American sells off 37 of its stores in areas where its presence would create near monoply conditions.

But last month, a federal judge blocked the American’s plans to convert its Alpha Beta supermarkets to Lucky stores, even though the purchase of the Lucky chain already was completed.

American has claimed that the court-imposed delay in integrating the two operations into the nation’s largest supermarket chain has been costing the company an estimated $250,000 a day in increased operating expenses.

But it is also keeping alive the earlier takeover speculation. Talk still abounds, analysts said, that American may eventually opt to unload the Lucky chain or other assets as a way out of the impasse.

The takeover fever spawned by a proposed buyout of RJR Nabisco Inc. and the Phillip Morris Cos. Inc. bid for Kraft Inc. has driven prices of food companies to a point where American conceivably could get significantly more than the $2.5 billion it paid for Lucky, analysts said.

Possible Compromise

Another potential development over the course of the next few weeks, analysts said, could be a possible court-approved compromise between the company and the state attorney general’s office, which filed the suit to block the merger.

Company spokesman Michael Miller said it is American’s policy not to comment on takeovers or other stock market activity affecting the company’s share price. He also said he was unaware of any negotiations involving a possible compromise on the stalled merger.

Analysts said the uncertainty surrounding American’s future has created a buying opportunity for those who enjoy the sort of thrill more often associated with stunt flying than stock investing.

“The American Stores story is fraught with both risk and opportunity,” said Jonathan Ziegler, an analyst with Sutro & Co. in San Francisco. “Anybody holding the stock now is in it with the hope of scoring big. This is not a stock for widows and orphans or anyone else faint of heart. But there is potential for a big payoff.”

One analyst, Robert Raiff, with C.J. Lawrence in New York, has estimated the breakup value of American Stores at $130 a share.

Still, others aren’t convinced that American Stores’ stock is headed through the roof.

Jeff Kilpatrick, president of Newport Securities, said his firm’s Orange County Growth Fund unloaded its position in American Stores Oct. 21 when the stock hit $64.50 a share.

Kilpatrick said the mutual fund bought shares in American Stores in April at $50.125.

“We’d like to own the stock again, but not at these prices,” he said. “People clearly overbid the stock on short-term speculation. My theory is take your profits and run.”