Pacific Enterprises Sheds Thrifty Corp. : Retailing: L.A. investors will buy most of the subsidiary, including Thrifty Drug. The deal is worth about $275 million.

By CARLA LAZZARESCHI

May 23, 1992 12 AM PT

TIMES STAFF WRITER

Ending an ill-fated expansion into the cutthroat world of retailing, Pacific Enterprises, best known as the parent of Southern California Gas Co., said Friday that it has found buyers for its money-losing Thrifty Corp. subsidiary.

Leonard Green & Partners, a respected Los Angeles investment group, will buy Thrifty Drug, the oldest and largest drugstore chain on the West Coast, Big 5 sporting goods and three smaller retailing chains with operations outside California. Payless Drug Stores, a subsidiary of Kmart Corp., is buying the Pay ‘n Save unit, a chain of 124 drugstores in the Pacific Northwest.

Pacific Enterprises, which has been under tremendous pressure to shed the retailing group, said it expects to receive a total of about $275 million for the subsidiary, a figure that includes a still-unspecified amount of tax credits.

“I can tell you it’s almost all tax benefits and almost no cash,” said Prudential Securities analyst David Fleischer. “They are taking over the stock of Thrifty for a very minimal payment, probably $40 million.”

The company paid $850 million--more than three times what it is receiving--when it bought Thrifty Corp. in 1986 as part of a grand plan to expand its operations beyond the reach of utility regulators and the topsy-turvy world of natural gas deliveries.

The sales price will not result in further losses for the parent because Pacific Enterprises has already written down its investment in Thrifty Corp. twice in the last three months. It took a $250-million charge in February, and just last week, as plans for the sale began to take shape, it took another $475-million write-down to reflect the likely sales price.

Thrifty Corp. includes three drugs chains--Thrifty Drug Stores, Pay ‘n Save Drug Stores and Bi-Mart--and three sporting goods outfits--Big 5, Gart Bros. and MC Sporting Goods. The companies, which together lost $164 million on sales of $3.3 billion last year, employ a total of 29,000 workers nationwide in about 1,059 stores.

Officials of Leonard Green & Partners could not be reached for comment on its plans for the Thrifty assets. Twenty-One Thrifty Drug outlets suffered damages during the recent Los Angeles riots, including four stores destroyed by fire. Thrifty officials had said the company would reopen all but the four burned-out stores by mid-June.

Announcement of the sale--expected to be final in 90 days--brought a sigh of relief from Pacific Enterprises President and Chief Executive Willis B. Wood, who was elevated to the job late last year to clean up the problems in the retailing group.

“The sale is an important first step toward rebuilding our financial strength,” he said. Wood added that the company will now focus on selling its oil and gas exploration business, another operation it acquired in its 1986 expansion drive.

As a result of its mounting retailing losses, Pacific Enterprises lost $88 million in 1991 and suspended payment of its 44-cents-per-quarter common stock dividend in February. It was the first time in 75 years that Pacific Enterprises had not paid a dividend.

Within days, the company was slapped with a shareholder class-action lawsuit alleging that the company withheld key information from its stock owners. The first pretrial hearing on the suit, which seeks damages in excess of $100 million from Pacific Enterprises, is scheduled for next week.

Pacific Enterprises’ stock has plunged from a peak of $61.375 in 1987 to a low of $17.375 in early February of this year. Shares closed at $19.75 Friday on the New York Stock Exchange, but trading was unaffected by the sale since it was announced after the market closed.

Green is expected to keep Thrifty Corp.’s existing management group, led by Chairman and Chief Executive William E. Yingling III. Green is also allowing the management team to become members of his investment group in Thrifty Corp.

Thrifty Drug, the largest component of Thrifty Corp., was founded in 1929 as Thrifty Cut Rate Drug Store by two brothers, Harry and Robert Borun, and their brother-in-law, Norman Levin. The first store was at 4th Street and South Broadway in downtown Los Angeles.

Over the years it grew to become the largest drugstore chain on the West Coast, with 620 outlets and 15,000 employees in California, Arizona and Nevada, including 329 stores and about 7,000 employees in Southern California. The chain has recently slipped into second place in Southern California sales behind Save-On Drugs.

The Sale of Thrifty Corp.

Pacific Enterprises on Friday announced an agreement to sell its retail operations under a previously announced plan to divest assets and pay down some debt.

Pacific Enterprises will keep:

* Southern California Gas Co.

* Pacific Interstate Co. (Utility group 1991 revenues are 3.29 billion, including interstate and pipeline subsidiaries)

Under the proposed transaction, Pacific Enterprises divests Thrifty Corp. (1991 revenue: $3.25 billion)

Leonard Green & Partners acquires stock of Thrifty Corp. and assets:

* Thrifty Drugs (620 stores primarily in California)

* Big 5 Sporting Goods (138 stores in the western United States)

* MC Sporting Goods (77 stores in the Midwest)

* Gart Bros. (50 stores in the Rocky Mountain states)

* B-Mart (42 stores primarily in Oregon)

Payless Drug Stores, a unit of Kmart Corp., acquires:

* Pay ‘n Save (124 stores in the Northwest)