Safeway to Buy Texas Chain Randall’s Food
Accelerating the pace of consolidation in the supermarket business, Safeway Inc. said it will buy closely held Randall’s Food Markets Inc. of Houston for $1.4 billion in cash and stock.
“This is a superb deal, and one that Wall Street wanted,” said Gary Giblen, a New York-based grocery analyst with Bank of America Securities.
The purchase of 116 Randalls and Tom Thumb supermarkets in Texas will boost Safeway’s sales in the U.S. and Canada to $30 billion this year in 1,645 stores in 19 states.
With the Randall’s purchase, Safeway can reenter Texas--a market it pulled out of during its leveraged buyout in the late 1980s--as one of the top supermarket operators.
In Houston and Dallas, Randall’s has a 20% market share, putting it in third place, behind Cincinnati-based Kroger Co. and Boise, Idaho-based Albertson’s, respectively, according to the Atlanta-based Shelby Report. The Texas stores will continue to operate under the Randalls and Tom Thumb names. Randall’s chief executive, R. Randall Onstead Jr., will continue to run the division for Safeway.
Pleasanton, Calif.-based Safeway said it plans to finance the acquisition with $855 million in cash and 10.9 million of its shares. The supermarket giant also will assume $375 million in Randall’s debt in the deal, which is expected to close in the third quarter.
New York buyout firm Kohlberg Kravis Roberts & Co., Randall’s majority owner with a 62% stake, agreed to vote in favor of the transaction. That stake, purchased in 1997 for $225 million, is now worth $883 million. KKR also owns a small stake in Safeway, which it took private in 1986. After the Randall’s purchase is complete, KKR will hold a 7% stake in Safeway.
The transaction was unanimously approved by the directors of Randall’s not affiliated with KKR and by a special committee of Safeway’s board, consisting of three outside directors also not connected with KKR. Members of the Onstead family, who own about 21% of the company, also agreed to vote in favor of the merger.
“This is a wonderful opportunity for Safeway to continue to grow,” said company spokeswoman Debra Lambert. “We consider Randall’s to be the premier operator in Texas.”
Some redundant jobs will probably be eliminated at Randall’s Houston headquarters, Safeway officials said.
Supermarket chains have been combining at a rapid clip in recent years because such mergers are quicker and less expensive than building stores from the ground up. By bulking up, these chains can also capitalize on economies of scale in buying and distribution.
Safeway has grown significantly by acquiring Southern California-based Vons, Dominick’s Supermarkets in Chicago and Carr-Gottstein Foods in Alaska.
Shares of Safeway jumped $3 to close at $53.75 on the New York Stock Exchange.
