Plan to Merge Lucky, Alpha Beta Abandoned : Antitrust suit: American Stores, the parent company, will divest 161 markets in next five years.
The parent of Lucky and Alpha Beta supermarkets gave up its costly legal battle to merge the two big chains and agreed Wednesday to sell most of its Alpha Beta stores in Southern California.
Under a deal reached with California Atty. Gen. John K. Van de Kamp, American Stores consented to divest 152 of its Alpha Beta stores and nine of its Lucky Stores within five years.
The remaining organization would operate under the Lucky name and remain the biggest supermarket chain statewide with 373 stores, and second only to Vons in Southern California with 188 stores in the region.
Michael T. Miller, senior vice president for Salt Lake City-based American Stores, said about 12,000 people work at the stores, warehouses and offices that are being put up for sale. He said the company would make a good-faith effort to find buyers who would honor the employees’ union contracts and keep them on the job.
Industry analysts said that Van de Kamp was the clear winner in the settlement, which one retail expert called “one of the cleanest, sweetest” legal victories that the Democratic gubernatorial candidate could win.
“We’re very pleased,” said Michael Strumwasser, a California special assistant attorney general. “They (American) have done the right thing for themselves and consumers with the settlement. From the beginning our concern was that we were losing the competition between the two chains, and now we’re recovering it.”
“We chose to settle,” he added, “because we got all the relief we wanted.”
Attorneys for the state contended that the proposed Lucky-Alpha Beta merger, by reducing competition, would have cost California consumers $200 million a year in higher prices. American Stores countered that the combination, by making the chains more efficient, would have saved consumers $70 million a year.
“In the long run, the consumers of California are being shortchanged in the process,” Miller said.
He conceded that the settlement was a disappointment for the company.
“We’re saddened, but eventually you have to determine what’s in the best interests of your shareholders. . . . We did not think it made sense to carry on litigation through appeal after appeal.”
The pact resolves a dispute that began around June, 1988, when American Stores, which already owned Alpha Beta, bought Lucky for $2.5 billion and planned to combine the chains under the Lucky name. The next day, Van de Kamp filed suit to unravel the merger on antitrust grounds.
While the legal battle raged in federal district and appellate courts, American remained the owner of the two chains but was required to run them separately. Then, on April 30, American’s hopes of combining all of Lucky and Alpha Beta into a huge California supermarket organization were deflated by a major setback in the U.S. Supreme Court.
In a far-reaching decision, the high court held that state officials and private lawyers have the right to dismantle anti-competitive mergers even if the deals already are approved by federal authorities.
Although that decision didn’t rule out American’s chances of combining Lucky and Alpha Beta, it freed Van de Kamp to return to federal court in Los Angeles to challenge the merger. Company officials, at that point, appeared to lose their will to fight and wanted to avoid the prospect of being ordered to divest Lucky, the more profitable of the two chains.
American and Van de Kamp previously reached agreements allowing 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 the northern part of the state and put the remaining 23 stores under Lucky’s name and management.
In January, Van de Kamp’s office and American cut a separate deal allowing the two chains’ warehouses in Southern California to blend some operations.
While the earlier agreements had no clear winner or losers, Wednesday’s settlement did, analysts said. Van de Kamp is “a complete and utter victor. He didn’t compromise a minute,” said Jonathan H. Ziegler, an analyst with Sutro & Co. in San Francisco.
In fact, American agreed to pay $550,000 to the attorney general’s office, which it said would cover a portion of the state’s legal expenses.
The impact on consumers was where analysts parted camp. To Ziegler, whether consumers will benefit by stopping the merger has yet to be decided. But John B. Kosecoff, managing director at the New York investment firm of First Manhattan Co., said the consumer could have been hurt by the settlement.
“The plan at American was to merge the operation as they did in Northern California and Las Vegas, which was followed by in both cases a reduction in consumer prices,” Kosecoff said. “If those examples are valid, then consumers will not have the opportunity to benefit from the sharper pricing that would have been instituted at Alpha Beta.”
But Strumwasser disagreed, contending that consumer interest was at the heart of the original suit filed by his office and that consumers were the real winners in the settlement.
“We think the impact (on the consumer) will be as if the merger had never occurred,” Strumwasser said. “The consumer will still have two viable, effective competitors to choose from. Lucky and Alpha Beta will be pressuring one another for lower prices. And that is all we could have obtained from successful prosecution of the case.”
The settlement was not viewed as all bad for American. Miller noted that the agreement places no restrictions on American’s ability to expand in the state. He said, however, that the company is now more likely to build or expand stores than to buy supermarkets in California.
Another plus, Kosecoff said, is that the sale of the 161 Alpha Beta stores will help relieve some of American’s $3.6-billion debt load, of which $2.3 billion was assumed in the purchase of Lucky.
In addition, the settlement saved American the costs of perhaps four or more years of litigation.
“During that period, it would be likely that American Stores’ Alpha Beta operation would continue to be disadvantaged by its uncompetitive cost structure and as a result would not be able to offer adequately competitive pricing to consumers or reinvest in its stores,” Kosecoff said.
American reported that the 161 stores to be divested--the agreement calls for them to be put up for sale within six months--posted net earnings of $32.5 million on sales of $1.8 billion last year.
