Safeway to Go Public Again to Fund Growth

Safeway Stores, which went private in 1986 to avoid a takeover by the father-and-son raider team of Herbert and Robert Haft, said Monday that it plans to sell stock to the public again to raise as much as $160 million to build and remodel stores.

The big Oakland-based supermarket operator announced plans to offer 10 million new shares, or nearly 10% of the company, at $13 to $16 a share on the New York Stock Exchange. At the same time, the 1,100-store chain reported robust improvements in 1989 operating earnings that analysts agreed should make the company attractive to investors.

“It’s a very cautious price,” Brian E. Suher, an analyst with the Black & Co. investment house in Portland, Ore., said of the anticipated initial share value. “I can’t see how they won’t be wildly successful with (the offering).”

According to documents filed by Safeway with the Securities and Exchange Commission, neither Kohlberg Kravis Roberts & Co., which owns 70% of Safeway shares, nor members of Safeway’s management, who hold 10%, are selling any common stock in the offering.

“Nobody’s cashing out on this,” said analyst Jonathan H. Ziegler with Sutro & Co. in San Francisco. Rather, he said, the company wants “to figure out what they’re worth” by having the market set a value.

Some observers said they were puzzled by the timing of the offering in a period of great market volatility.

“I thought they could easily have done (the offering) at two times this price if this had not been a hard market,” Suher said.

A sale of stock would bring Safeway full circle from late 1986, when it converted to private ownership in a $4.3-billion deal arranged by KKR, a specialist in leveraged buyouts. Often in such deals, assets of the purchased company are sold to reduce the heavy debt taken on to cover the transaction.

In Safeway’s case, more than 1,000 stores were sold, reducing sales to $14.3 billion last year from $20.3 billion and slashing 60,000 employees from the payroll. (Most of those workers were retained by the companies that bought the stores.)

Proceeds of about $2.3 billion were used to pay off part of the company’s $5.8 billion in debt, which now stands at $3 billion.

With its debt under control, Safeway said Monday that it wants to concentrate on improving and building stores. It announced an ambitious $3.2-billion capital spending plan for the years 1990 to 1994, double the amount spent in the previous five years.

In its prospectus, it said it plans to open about 70 new stores and remodel about 240 stores over the next two years.

Analysts, who have been expecting a Safeway public offering for two years, have praised the company’s efforts to pare its debt and improve operations by adding high-profit salad bars, seafood shops and bakeries.

For the year ended Dec. 30, the company said its operating profits grew 42% to $463 million. However, net income shrank to $2.5 million from $31.2 million in 1988, dragged down by a one-time $46-million tax charge. Moreover, the 1988 figure was aided by an after-tax gain of $48 million associated with the sale of assets.