Ralphs Grocery Chain Sale Retooled for Bondholders


The financial structure of a planned Southern California supermarket mega-merger is being renegotiated in a bid to satisfy bondholders, prompting the two sides Friday to extend their talks for a second time.

The prolonged talks have prompted some to question whether the planned purchase of Ralphs Grocery Co. by the owners of Food 4 Less supermarkets is in trouble, but analysts Friday doubted it.

"They don't have an agreement yet," said Sheila O'Connell, a bond analyst at Duff & Phelps, "but the deal is very close to being done."

The negotiations are a crucial step in the plan by Food 4 Less Supermarkets to finance the Ralphs acquisition because the companies must first convince 80% of their bondholders to swap their holdings for new bonds, which would be issued by a merged grocery company.

The original bond swap offer was to expire Feb. 22, but Food 4 Less extended the offer until Friday and then extended it a second time to Tuesday to allow further discussions with bondholders.

Sources said that to provide the supermarkets the financial flexibility to meet bondholder demands, Ralphs' chief shareholder--DeBartolo Corp.--has agreed to accept $50 million in notes that were to have been paid in cash under the original acquisition deal reached last September.

Under that agreement, Ralphs would be acquired for $1.5 billion--including the assumption of about $1 billion in Ralphs debt. DeBartolo and Ralphs' other shareholders were to be paid $425 million in cash, but have agreed to accept $375 million in cash and payment of the $50 million difference at a future date.

The supermarkets plan to use the additional cash to offer bondholders a new bond issue with higher yields and fees. Food 4 Less last week said it would amend its offer after bondholders demanded more favorable terms. But final agreement wasn't reached Friday.

If a bond swap is successfully negotiated, a new, separate $400- million bond offer would be made to finance the acquisition.

"There may now be an offer that is more favorable from the bondholder point of view," said Fran Schulman, senior analyst at Moody's Investor Services in New York.

If the merger is completed, the combined entity would surpass Vons as the largest supermarket chain in Southern California. Food 4 Less, based in La Habra, also operates Boys, Viva and Food 4 Less warehouse stores. Ralphs is based in Compton.

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