Investor Pursues the Art of the Friendly Takeover : Acquisitions: Leonard Green and partners, negotiating now for Payless drugstores, have a record of building value.

If Leonard Green--an avid collector of paintings--puts the finishing touches on a deal that merges his partnership’s Thrifty Drug stores with the rival Payless chain, he will boost his reputation as a master of the art of acquisition.

Kmart has signed a letter of intent to sell its Payless drugstore unit to Leonard Green & Partners, which could lead to a sale that would rank among the biggest deals in the four-year history of the Los Angeles-based partnership.

Such a deal would be the latest in a long series for lead partner Green, an acquisitions pioneer known for engineering friendly buyouts of such firms as Budget-Rent-a-Car and Foodmaker Inc. of San Diego, the restaurant giant that operates the Jack in the Box and Chi-Chi’s chains.

Unlike the corporate raiders of the 1980s who quickly resold their acquisitions, Green’s partnerships more often retain acquisitions for years--overseeing expansions and major earnings increases--before selling them or offering stock to the public.

“Leonard Green is very savvy and he has a reputation for integrity,” said Kurt Barnard, a New York-based retail economist.

Although Green would not comment on his negotiations with Kmart, Payless would fit into his investment strategy of negotiating for high-profile undervalued enterprises.

Industry analysts say a merged Thrifty-Payless would appreciate in value--much like the million-dollar paintings by American Impressionist Childe Hassam in Green’s personal art collection.

“We acquire companies with growth potential and look for ways to add value,” Green said in a recent interview. “I’m not . . . a raider who makes money primarily by immediately breaking up a company and selling its parts.”

Indeed, Green, who has been involved in acquisitions partnerships since 1969, has tried to disassociate himself from the ‘80s-era wheeler-dealers who engineered hostile takeovers and then quickly put those firms or their assets on the auction block.

Green’s former partnership--the New York-based Gibbons, Green, van Amerongen--tended to pursue friendly buyouts in the 1980s, in cooperation with the management of target companies. In addition to Budget-Rent-a-Car, the buyouts included the Kash n’ Karry Food Stores chain in Florida and Purex Industries, manufacturer of cleansing products.

Green is now attracting investors for Green Equity Investors II, the fifth investment fund his partnership has created in its four-year history. Green said he has already raised about two-thirds of the $300 million he is seeking for the fund. Like the previous funds, the latest pool is being created to make friendly acquisitions in which the management of target companies join Green’s group as investors.

“We’ll continue with the same investment philosophy,” Green said of the latest fund. “The strategy is to look for existing companies with a good niche in their market and strong managers we can retain. We’ll be looking for manufacturing firms, but we’ll consider retail companies also if a good opportunity comes along.”

Green’s group, along with Foodmaker, has joined with a New York investment firm called Apollo Advisors to acquire the debt-plagued Restaurant Enterprises Group. Irvine-based Restaurant Enterprises operates about 570 restaurants, including El Torito, Coco’s, Carrows and Reuben’s. The parties expect to complete the deal in January.

The deal would combine El Torito and Chi-Chi’s, the nation’s two largest Mexican food restaurant chains.

Green, who hopes to help reverse the restaurant group’s fortunes, is already assisting a turnaround at Thrifty as a member of Thrifty’s board. A group led by Leonard Green & Partners in September, 1992, acquired Thrifty--a money-losing operation at that time--and Big 5 Sporting Goods in September, 1992. Thrifty officials say the privately held company recently began to generate a profit.

Not all of Green’s efforts have been successful, and he has taken part in deals that have been questioned.

For example, Gibbons Green was criticized for paying too much when it bought Cleveland-based Ohio Mattress Co. in 1989. And AMC Corp., a tape cassette maker that Gibbons Green bought from Mattel in 1974, later failed.

“Leonard is a survivor,” said Jonathan Sokoloff, one of Green’s two partners at his investment firm. “We disagree with Leonard on occasion but talk things through and reach a consensus. He’s a master negotiator because of that ability to compromise.”

“He’s an intuitive investor,” added Christopher Walker, Green’s other partner. “He has the ability to look at potential transactions, determine value and conceptualize how a deal might be done.”