Bagging a Deal : Alpha Beta’s Parent Finalizes Plan to Buy Ralphs Chain for $1.5 Billion
Touting their union as a deal that will help them upgrade stores and escalate the local price war, the owner of Alpha Beta supermarkets on Wednesday completed a long-anticipated agreement to acquire 121-year-old Ralphs Grocery Co.
Yucaipa Cos., which also owns the Boys, Viva and Food 4 Less warehouse stores, signed a definitive agreement to acquire Ralphs from the Ohio-based DeBartolo Corp. for $1.5 billion. The combined company’s value would be $2.5 billion, making the deal the largest supermarket merger in California history.
The pledge of lower prices is doubted by some antitrust experts, and the merger still faces scrutiny by state and federal regulators. If approved, the combined company would be the largest supermarket chain in Southern California with 27% of the market--surpassing longtime leader Vons in sales and store sites.
The two firms, which had been in talks for more than a year, missed several informal deadlines in recent days because one of the six Ralphs shareholders, Paris-based Banque Paribas, had withheld approval. But that impasse was resolved Wednesday.
The companies said they plan to combine their operations by November or December. Though Yucaipa is the acquiring company, Ralphs management would run the vast enterprise on a day-to-day basis--an acknowledgment that Ralphs is the strongest of the five chains.
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The combined entity is to be called Ralphs Grocery Co., and Yucaipa plans to convert all of its Alpha Beta, Boys and Viva markets to Ralphs or Food 4 Less warehouse stores. The new partners promised to improve service by adding staff at the stores and lowering prices, partly by converting some locations to the low-price Food 4 Less warehouse format.
Though consumer groups have voiced concern that the reduced number of players on the Southern California supermarket scene will mean higher prices, some customers seemed pleased to know that Ralphs would be in charge.
“When it’s time to do major shopping, I never go to Alpha Beta,” Irvine shopper Lisa Rodriguez said as she fed bottles and cans into Alpha Beta’s recycling station. “I like the way the (Ralphs) store is laid out, I like the meat prices better, and they have a better selection.”
As expected, Yucaipa Chairman Ron Burkle would be chairman of the merged firm and Ralphs Chairman Byron Allumbaugh would become chief executive of the combined company. In interviews, they said they are converting the stores because Ralphs has a higher public profile than the younger Alpha Beta, Boys and Viva chains.
“Ralphs has a very good image . . . and it doesn’t make sense to operate under different names,” Burkle said.
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Ralphs President Al Marasca would be the new company’s president, and George Golleher, president of Food 4 Less Supermarkets, the La Habra-based company that operates the chains controlled by Yucaipa, would become vice chairman.
They would oversee an enterprise that currently includes 167 Ralphs, 131 Alpha Betas, 24 Boys and 15 Viva stores, as well as 30 Food 4 Less warehouse stores. Some stores are expected to be closed and an undetermined number of jobs would be lost.
In addition to the conversion of all surviving conventional supermarkets to the Ralphs format, up to 30 of the Ralphs locations are to be converted to Food 4 Less stores to better compete with existing warehouse stores and the anticipated challenge from Wal-Mart, which will be opening grocery operations in California under its “superstore” format.
Burkle and Allumbaugh said that with two chains--Ralphs and Food 4 Less warehouse stores--instead of the current five, the company can save $100 million annually by consolidating administrative and distribution functions. It can also slash advertising budgets.
“We’ll take the cost savings and pass them along to consumers,” Burkle said.
The companies said they have not yet determined how many jobs would be eliminated. The headquarters for the combined company is to be at Ralphs current corporate offices in Compton. A smaller staff would continue to work at the Food 4 Less Supermarket offices in La Habra, the executives said.
The new company would have annual sales of more than $5.3 billion, the partners said. The $1.5-billion price includes Yucaipa’s assumption of nearly $1 billion of Ralphs’ debt. They said the transaction also includes the purchase of additional equity by Apollo Advisers, a minority investor in Food 4 Less Supermarkets.
The Federal Trade Commission and California Atty. Gen. Dan Lungren are conducting reviews to determine whether consumers would be helped, hurt or unaffected by the mega-deal. The officials could block the merger or, more likely, force the combined company to sell some stores on antitrust grounds.
“We’re taking a very close look at it,” said Lawrence Tapper, deputy state attorney general.
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In the past, some local supermarket chains have been forced to pare down merger plans in the face of opposition from regulatory agencies. For example, though Alpha Beta’s former corporate parent, American Stores, was permitted to merge Alpha Beta stores with Lucky markets in Northern California in 1991, it was forced to sell 145 Alpha Beta stores in Southern California to Yucaipa.
Most of the major competitors of the planned new company had no comment on the merger, but one supermarket executive who requested anonymity said a combined Ralphs-Food 4 Less would have too great a presence in certain neighborhoods.
“The potential for price gouging is greater when you dominate an area,” he said.
The new entity would respond to any competitive price cutting with promotions of their own, to lure customers of Alpha Beta, Boys and Viva sites that are converted to Ralphs and Food 4 Less formats, executives at the two companies said.
But some real estate brokers said there appears to be relatively little overlap between the two operators.
“These two companies are working different neighborhoods, so to speak,” said Ted Lawson, a senior vice president with CB Commercial in Torrance. “Food 4 Less is working its way up, Ralphs is working its way down, and they share some middle zones. So there might not be a lot of duplication. I don’t see them dropping stores unless they’re on the same block.”
Market Merger
The merger of Ralphs Grocery and Yucaipa, which owns Food 4 Less, Alpha Beta, Viva and Boys markets, has created Southern California’s largest supermarket chain.
MARKET SHARE
Yucaipa-Ralphs: 27.0%
Vons: 19.2%
Lucky: 14.1%
Albertsons: 7.5%
Stater Bros.: 6.8%
Other: 25.4%
NUMBER OF STORES:
Yucaipa-Ralphs: 367
Vons: 335
Lucky: 215
Albertsons: 106
Source: Progressive Grocer 1994 Market Scope, company reports
