Burkle’s Next Deal: Internet Start-Up?
Billionaire grocery magnate Ronald W. Burkle plans to branch out from the supermarket aisles he knows so well to the fast-moving world of the Internet, after announcing an $8-billion deal Monday to sell Fred Meyer Inc. to Kroger Co., a spokesman said.
The agreement to sell Fred Meyer to the largest U.S. supermarket company is just the latest in a string of deals by Burkle, who started his career sweeping the floors and stacking loaves of bread at a grocery store in Claremont.
In the last 12 years, Burkle, 45, has bagged and delivered more than $25 billion worth of mergers. That includes the deal to acquire Kroger for about $8 billion in stock, plus $5 billion in assumed debt, on the heels of a deal last week to sell Illinois-based Dominick’s Supermarkets Inc., of which Burkle is the chairman, to Pleasanton, Calif.-based Safeway Inc. for $1.85 billion.
Once the latest deal is completed, Burkle, also chairman of Fred Meyer, would become chairman of the new Kroger executive committee. That means he would not have as much of a day-to-day role, analysts said.
Instead, Burkle hopes to be a player on the Internet. He’s expected in the next month to announce a multimillion-dollar venture with Richard Wolpert, who resigned as president of Disney Online in June after two years with that division.
Wolpert began his career at Apple Computer Inc. in Silicon Valley, where in 1984 he helped design the Macintosh Programmers Workshop, which helped develop the Macintosh. He also taught a class at Stanford University on how to write stand-alone applications for the Mac.
While those close to Burkle aren’t talking, and Burkle wasn’t available for comment Monday, some have suggested the latest collaboration will be an electronic commerce venture based in Century City.
“We will be making a major announcement in the next few weeks that we are very excited about,” said Darius Anderson, spokesman for the Los Angeles-based Yucaipa Cos.
Burkle is also the head of Yucaipa, a supermarket investment firm that owned the Ralphs and Food 4 Less grocery store chains before they were sold to Fred Meyer, creating the nation’s fourth-largest grocery store chain. Yucaipa holds 9% of Fred Meyer’s stock.
Grocery store chains are scrambling to combine to better compete against fast-growing rivals such as Wal-Mart, which are stocking more groceries.
On Monday, shares of Cincinnati-based Kroger tumbled $3.19 to $45.44 on the New York Stock Exchange, reflecting investor anxiety over the higher debt level the merged company would carry. Portland, Ore.-based Fred Meyer shares slumped $4.81 to $44.19, also on the NYSE.
Burkle, who is worth an estimated $1 billion, according to the most recent Forbes magazine (though some observers put the figure closer to $1.7 billion in the wake of these recent deals), has emerged as one of the most aggressive supermarket consolidators around.
“Ron is one of the greatest deal makers I’ve ever seen. He’s an operator,” said Ken Moelis, the Donaldson, Lufkin & Jenrette investment banker who has advised Burkle on many deals.
“He delivers in good times and bad economic times. He understands what everyone needs in the room to make things happen,” Moelis said.
“He combines an excellent knowledge of the food retailing business and deal making,” said Peter Copses, with Apollo Advisors, the Los Angeles buyout firm that has served as a partner with Burkle in several deals. “He’s a very personable and upstanding person.”
The well-connected Burkle socializes with famous actors, travels with President Clinton and moves in Wall Street’s power circles.
Known for a self-effacing style and high energy, Burkle usually arrives at his spacious but spartan Century City office in a casual shirt and jeans.
Burkle said he’s learned a few things.
“I learned deal-making is knowing what’s important to the other side and that I don’t have to win on every point,” he said in a past interview. “I also learned that reputation is very important.”
Still, some analysts believe Burkle’s abilities as a supermarket operator are over-rated, claiming the Fred Meyer merger saved Ralphs from disaster. Indeed, debt-burdened Ralphs has had losses the last three years, including a loss of $102 million in 1997.
“Ralphs was ready to crash,” said one executive at another food company, who requested anonymity. “The Meyer deal allows them to shed all of that debt. There are three ways to turn a company around--increase sales, cut costs and raise the profit margin by raising prices. They couldn’t raise prices for competitive reasons and they had already increased sales and cut costs. There was nothing else they could do.”
Indeed, Burkle has built his empire with large amounts of debt, forming partnerships with many leveraged buyout firms. These firms, such as Apollo, like supermarkets as debt investments, mostly because of the steady cash flow.
Wall Street isn’t the only place Burkle operates.
Burkle is known for lavish entertaining with power brokers at his Green Acres estate, the historic Beverly Hills mansion built by silent-film star Harold Lloyd and previously owned by department store heir Ted Field.
At the mansion, with a reported 40 rooms--plus 18 bathrooms--Burkle has held fund-raisers for Los Angeles Mayor Richard Riordan, California Gov. Pete Wilson and Clinton. On Monday, however, Burkle’s worlds of power-brokering collided, when Burkle was a no-show for a luncheon at his home with Treasury Secretary Robert E. Rubin.
Because he had rushed to New York to hammer out the details of the $8-billion grocery merger, Burkle wasn’t able to return in time to host the long-planned event for Rubin and several congressmen.
The event went on as planned--with a Burkle substitute, his spokesman said.
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Bagging Deals
Fred Meyer Inc. Chairman Ronald Burkle engineered the company’s $8 billion deal with the nation’s largest grocery store operator, Kroger Co. Kroger’s acquisition of Fred Meyer is the latest in a string of lucrative mergers arranged by the self-made grocery store billionaire. A look at the combined grocery company’s holdings and Burkle’s background:
Kroger/Fred Meyer
* Headquarters: Cincinnati
* Chief executive: Joseph A. Pichler
* Employees: 300,000
* Reach: 2,200 stores spanning 31 states from California to the Carolinas
* Combined sales: $43 billion
Ronald Burkle
* Age: 45
* Net worth: $1 billion
* Residence: Beverly Hills
* Career highlights: Bagged groceries at a Stater Bros. supermarket after school. Rose to vice president of Stater Bros., which his father owned. Tried and failed to buy Stater Bros. Inc. in 1981. Founded buyout fund Yucaipa Cos. in 1986. Eventually purchased Ralphs and Food 4 Less chains, which were sold to Fred Meyer last year. In that deal, Meyer also acquired the QFC chain, which owned Hughes. Brokered deal between Kroger and Fred Meyer.
Source: Forbes, Times and wire reports
