Ruling Likely to Detour Lucky, Alpha Beta Merger

American Stores’ plans to put together a huge California supermarket chain appeared to unwind Monday after the company suffered a major setback in U.S. Supreme Court.

Industry analysts said American, parent of Lucky and Alpha Beta stores, is now under pressure to seek an agreement that would settle the challenge by California Atty. Gen. John K. Van de Kamp to the proposed combination of the two supermarket divisions. Neither the Attorney General’s Office nor American would discuss the likelihood of a settlement.

Any out-of-court agreement probably would require American to sell some of its Lucky or Alpha Beta stores and accept curbs on its ability to buy other supermarkets in California. If efforts to settle fail, some analysts said, American might try to sell its entire Alpha Beta division, which has lost ground to competitors.

American’s plans to combine Alpha Beta and Lucky, which it bought for $2.5 billion in June, 1988, were jolted by a Supreme Court decision allowing state authorities and others to contest mergers under federal antitrust law.

American had argued that the authority for weighing mergers under U.S. law rested with such federal regulators as the Federal Trade Commission, which approved the proposed Alpha Beta-Lucky combination before Van de Kamp launched his challenge. American has operated Lucky--already the state’s largest chain--and Alpha Beta largely as separate organizations while it waged its legal battle.

Under Monday’s ruling, American can still argue for allowing the merger on the grounds that the combination would not significantly reduce supermarket competition in Southern California. Industry observers, however, said the Salt Lake City-based company appears to be losing its will to continue its court battle.

“Management at this point appears to be frustrated and flustered,” said John Kosecoff, an analyst with the First Manhattan investment firm.

Christopher O. B. Wright, an antitrust specialist with the law firm Latham & Watkins in Los Angeles, predicted that American would settle its case rather than risk losing its court fight and being forced to sell its Lucky stores. He said that under the Supreme Court ruling, a lower court judge could order such a divestiture.

“I’d expect that American Stores will go to the bargaining table pretty quickly,” Wright said.

Observers also speculated that Van de Kamp is increasingly interested in a settlement. They said that Van de Kamp, a Democrat campaigning for governor who faces a primary vote in June, would like to resolve the dispute and devote his attention other issues.

“He already has the big victory here,” Wright said.

Michael J. Strumwasser, a special assistant attorney general working on the case, said his office has been interested in an out-of-court agreement all along. Monday’s ruling, he added, “certainly makes it easier to settle the case.” But he declined to elaborate.

American and Van de Kamp already have reached settlements that have allowed two small parts of the proposed Lucky-Alpha Beta merger to go ahead. In November, American won the right to merge its stores in Northern California, where the company is less of a competitive force. Under the deal, American agreed to sell 13 of its 36 Alpha Beta stores in Northern California and put the remaining 23 stores under Lucky management and give them the Lucky name. American’s merger plan has called for all of its current Alpha Beta stores to be operated under the Lucky name.

Then, in January, Van de Kamp’s office and American reached an agreement allowing the two chains’ warehouses in Southern California to blend some operations.

Together, Lucky and Alpha Beta would be the leading supermarket chain in Southern California. According to recent market research, 29% of the households in Los Angeles and Orange counties buy most of their groceries at Lucky or Alpha Beta stores. In second place is Vons supermarkets, including the company’s Pavilions stores, with a market share of 24%.

For consumers, Monday’s ruling may eventually provide some good news. Analysts and company officials have argued that the cost of running both Lucky and Alpha Beta has driven up American’s expenses, and those expenses have been passed along to consumers in the form of higher prices. Any settlement, consequently, could help bring down those costs.

For its part, Van de Kamp’s office has argued that a full merger of Alpha Beta and Lucky, by cutting competition, would push up prices and cost California consumers more than $200 million a year. Taken in that light, a settlement could be crafted to eliminate those price increases.

Lucky has 185 stores in the six-county Southern California region consisting of Los Angeles, Orange, San Diego, Riverside, San Bernardino and Ventura counties. Throughout California, it has 373 stores, making it the state’s No. 1 chain.

Alpha Beta has 175 stores in Southern California, the only part of the state where it continues to do business. It ranks among the state’s five largest chains.

In trading on the New York Stock Exchange, American’s shares fell $1.75, closing at $63.75.

MAJOR GROCERY CHAINS IN SOUTHERN CALIFORNIA

List shows total outlets in Los Angeles, Orange, Riverside, San Bernardino, San Diego and Ventura counties as of September, 1989

Chain Stores Vons 252 Lucky* 185 Alpha Beta* 175 Ralphs 143 Stater Bros. 99 Albertsons 62 Hughes 44 Boys Markets 23 Market Basket 17 Grocery Warehouse 16 Pavilions Place 13 Pavilions 12 Super A Foods 10 Fedco 9 Viva 9 Gelson’s 8 ABC 7 Jons Market 7 Tianguis 7 Jonsons Markets 6 Mayfair 5 TOTAL 1,084

* Figures are current

Source: Los Angeles Times Marketing Research

BROAD POWERS

State officials can contest planned mergers under federal antitrust law, the high court rules. A1