American Stores Clears Hurdle in Merger Effort : But Van de Kamp Vows to Continue Challenge of Alpha Beta, Lucky Deal

American Stores won a key round Friday in its legal battle to combine its Alpha Beta and Lucky supermarket chains, but California Atty. Gen. John Van de Kamp vowed to continue his fight to block the merger.

The continuing legal battle leaves in limbo the effort by American Stores to merge the two chains under the Lucky name. As a result, the debt-laden company will continue to be forced to forgo annual savings of about $60 million that industry analysts estimate could result from a combination.

Moreover, some analysts said, consumers stand to suffer in the immediate future because the struggle prevents neighborhood Alpha Beta stores from adopting the Lucky low-price strategy. But others, including Van de Kamp, have predicted that the consolidation will ultimately raise prices by reducing competition.

A three-judge panel of the 9th U.S. Circuit Court of Appeals in San Francisco ruled Friday that a preliminary injunction Van de Kamp won in September that prevented the two chains from merging amounted to an order to divest--a power that the court said California does not have.

The appeals court ruled that the preliminary injunction was too broad because it required American Stores to operate its two chains separately, as competitors, as if the company’s $2.5-billion purchase of Lucky last year had never taken place. It also said that, in granting the injunction, U.S. District Judge David Kenyon in Los Angeles misunderstood laws governing corporate mergers and forced divestiture.

Timing of Suit Criticized

In a brief statement Friday, American Stores said that it was “gratified” by the ruling and that it “will integrate those operations forthwith.” Frank Rothman, a Los Angeles-based attorney for American Stores, said the company intends to seek a court order to speed the merger process despite Van de Kamp’s plan to appeal.

Rothman maintained that Friday’s ruling was a major victory for American Stores. “We stuck to our guns and we won and we won big,” he said.

Judge J. Clifford Wallace, who wrote the appeals court ruling, took the attorney general to task for not challenging the merger sooner. Van de Kamp filed his suit against the deal on Sept. 1, a day after it was tentatively approved by the Federal Trade Commission.

“California could have sued several months earlier and attempted to enjoin the merger before the stock sale was completed,” he wrote. “The attorney general chose not to do so. California must accept the consequences of his choice.”

However, the judge also specified that the attorney general can still seek to prevent certain anti-competitive effects of the merger. It could, for example, seek to prevent American Stores from closing certain stores or to limit further expansion of the chain.

Van de Kamp said Friday that he plans first to ask the full 9th Circuit court to hear the case. However, Michael J. Strumwasser, special assistant attorney general, said, “if they choose not to hear it, we’ll ask the (U.S.) Supreme Court to hear it.”

John B. Kosecoff, an analyst with First Manhattan Co., a New York brokerage, said that the Friday ruling was basically good news for American Stores. “There’s reason (for American Stores) to be optimistic,” he said. “The net result is positive . . . and suggests that they ultimately will be able to integrate the chains and gain the efficiencies and a highly valuable competitive position.”

However, he noted that the injunction remains temporarily in effect and, “in the worst case scenario, the case could extend to the Supreme Court and take many months.”

Investors in American Stores’ stock, however, reacted optimistically Friday. In composite trading on the New York Stock Exchange, American Stores shares rose $2.125 to $57.75.

In recent months, speculation has swirled that Van de Kamp and American Stores were attempting to pound out a settlement to allow the merger to proceed. Sources in the industry had speculated that American Stores would agree to sell off a substantial number of stores to get out from under the antitrust challenge.

One of Van de Kamp’s themes in his campaign for the 1990 Democratic gubernatorial nomination is that he looks out for consumers and “the little guy” better than Republicans. His press secretary, Duane Peterson, insisted Friday that Judge Wallace’s criticism would not hurt Van de Kamp politically.

‘Followed Procedures’

“First of all, we’re going to appeal the decision,” Peterson said. “And, when you read the court decision, there are 23 pages supporting our position. It all comes down to a technicality: Can a state sue to block a merger after the stock has changed hands?

“We believe we followed proper procedures. After the merger went to the FTC for approval, we filed detailed comments to the FTC urging it to deny the merger. When the merger was approved, we then sued.”

American Stores, which is relocating its headquarters to Salt Lake City after a brief stay in Irvine, operates 1,917 grocery and drug stores in 39 states. In addition to Lucky and Alpha Beta, it operates food chains under the names Skaggs Alpha Beta, Buttrey Food-Drug, Jewel, Acme Markets and Star Market, along with two drugstore chains, Osco and Sav-on.

It has 216 Alpha Beta stores in California, including 180 in Southern California, and 336 Lucky stores, including 216 in Southern California.

American Stores’ purchase of Lucky Stores, based in Dublin, Calif., created the nation’s largest supermarket company. As part of that deal, American Stores intended to adopt the Lucky banner and low-price strategy for its Alpha Beta chain.

The chains received approval of the FTC, which studied the merger for possible anti-competitive effects, to proceed with the combination on the condition that the company sell 37 stores.

However, in September, Van de Kamp sued to block the merger, maintaining that the combination gave American control of more than 25% of the state’s supermarkets and created an “anti-competitive” environment that would ultimately cost consumers more than $400 million a year in higher food prices.

On Sept. 7, Judge Kenyon in Los Angeles ordered American Stores not to sell or close stores or further combine the operations or names until he decided whether to order a full trial.

Later, Kenyon ruled that combining Alpha Beta and Lucky into one chain would “substantially and irreparably harm” California consumers and ordered a trial to see whether the merger violated federal antitrust laws. American Stores immediately appealed, and the case has been tied up in the 9th Circuit since then.

The appeals court said Friday that there was evidence to support Kenyon’s findings that the merger would increase concentration in the industry and would presumably lessen competition substantially. Although Wallace questioned Kenyon’s conclusion that it was difficult for newcomers to enter the field, he said the finding was within the judge’s authority.

SPLITTING THE PIE A chain combining Lucky and Alph Beta stores would dominate Southland “shopper traffic.”* * Store at which shoppers said they bought the majority of their groceries in 1988.

RALPHS 21% VONS 22% LUCKY/ALPHA BETA 25% HUGHES 5% ALBERTSONS 4% BOYS 4% OTHERS 19% Source: Times Marketing Research

Staff writers Jesus Sanchez and Keith Love contributed to this story.