Final Hurdle for Ralphs-Yucaipa Merger Cleared : Retailing: Agreement is reached with bondholders who sought higher interest payments from new entity.

Yucaipa Cos. and Ralphs Grocery Co. have reached agreements with bondholders that remove the last remaining obstacle for completing the largest supermarket merger in California history, Yucaipa executives said Thursday.

Yucaipa--which owns the Alpha Beta, Boys, Viva and Food 4 Less chains--is to acquire Ralphs under the terms of a $1.5-billion deal negotiated last September. The deal has been held up because bondholders of both companies were seeking higher interest payments and fees as a condition of participating in the deal.

After months of wrangling, negotiators agreed on the amount of money that bondholders will receive as compensation for swapping their holdings for new bonds to be issued by the merged entity.

The final hurdle was cleared when agreement was reached with six bondholders who control $101 million in bonds issued by Food 4 Less Supermarkets, the company that operates Yucaipa’s chains. Yucaipa, its financial backers--Bankers Trust, investor George Soros and Apollo Investors--and Ralphs decided to buy those bonds to end the impasse, Yucaipa Chairman Ron Burkle said.

Specific terms of the agreements were not available Thursday. The companies are expected to announce the details by next week. Yucaipa said it will begin to file some detailed documents on the deal Friday with the Securities and Exchange Commission. The merger could be completed by mid-June.

The agreements with bondholders were crucial because Yucaipa could not seek the new financing needed to make the acquisition until it dealt with the Food 4 Less bond debt of $400 million, as well as $450 million in Ralphs bonds. Yucaipa had expected to obtain acquisition funding by issuing about $400 million in new bonds. However, the exact value of the new bond issue has not been determined.

“I never had any doubts about the deal,” Burkle said. “It just took longer than expected. I feel pretty good about it because it meets the needs of bondholders.”

The combined entity is to be called Ralphs Grocery Co. The merger will create a vast chain controlling about a quarter of the California market, vaulting it past Vons, the current Southland leader with a 19% share. Lucky, Albertson’s, Hughes, Stater Bros. and Smith Food & Drug are among the other major Southern California competitors.

Some critics of the deal have said the merger will reduce the level of supermarket competition in the Southland and that higher grocery prices will ensue. However, Burkle said the new company will be more competitive because it will cut costs by consolidating many of the operations of the two companies.

“We’ll be more efficient and we’ll try to pass those savings on to the consumer,” Burkle said. “There will be more competition, and that means lower prices.”

The two partners continued with their merger planning during the bondholder talks. Sources said the companies have already proceeded with planning for the previously announced decision to convert most of Yucaipa’s 155 Alpha Beta, Boys and Viva stores to Ralphs stores.

Sources said all but 27 of the three Yucaipa-controlled stores will be converted to Ralphs stores, at the rate of 15 a month. The remaining 27 will be converted to Food 4 Less warehouse stores. Sources said there are also plans to convert three of the 174 current Ralphs sites to Food 4 Less warehouse stores.