Albertson's, American to Divest 145 Markets

By MELINDA FULMER

June 23, 1999 12 AM PT

TIMES STAFF WRITER

The divestiture of 145 stores announced Tuesday by Albertson’s Inc. and American Stores Co. will significantly alter the competitive landscape in California by allowing other major supermarket chains to move into new markets and giving independent operators new stores in prime urban locations.

Albertson’s agreed to divest 117 stores in California in order to win antitrust approval of its planned acquisition of American Stores, which owns the Lucky and SuperSaver stores. An additional 28 stores are being divested in New Mexico and Nevada.

The deal, which will create the nation’s second-largest grocery chain, with 2,400 stores in 38 states, raises concerns among some observers that an increasing concentration in the supermarket business would result in fewer choices for consumers.

The sale is the largest ever required of a retailer by the Federal Trade Commission and is the last remaining hurdle for the merger of the two grocery giants, which was announced in August. The acquisition is expected to be completed by midnight tonight.

Under the terms of the agreement with the FTC and state attorneys general, 31 stores will be sold to Commerce-based Certified Grocers of California, which will in turn sell those stores to its membership of independent grocery chains such as Gelson’s, Jons and Top-Valu; 27 stores will be sold to supermarket operator Raley’s Inc.; 40 will be sold to Compton-based Ralphs Grocery Co.; 43 will be picked up by Stater Bros. of Colton; and four will go to Vons Cos. All of the stores must be divested within the next four months, according to FTC guidelines.

“Ralphs has been looking to expand in Northern California for some time, and the merger between Albertson’s and American Stores allowed us to do that in a big way,” Ralphs spokesman Terry O’Neil said.

The chain, which is owned by Cincinnati-based Kroger Co., will pick up 31 stores in the Bay Area. It will operate all but three of the California stores under the Ralphs name. The others will become FoodsCo warehouses.

The sales will provide the biggest boost to Stater Bros., now located mainly in the Inland Empire. Its size will increase by almost 40%, giving it a much larger presence in Los Angeles and Orange counties.

“We’ll go from a company with $1.9 billion in annual sales to $2.4 billion in just 90 days,” Stater Bros. Chief Executive Jack Brown said. “This will give us much greater purchasing power.” The chain will begin converting the stores to its format in 45 days.

Brown said the employees at the stores it is purchasing will keep their jobs, wages and seniority.

Albertson’s spokesman Michael Read said employees of all the divested stores are likely to be offered jobs by their new owners. “There will be very little job loss as a result of these divestitures,” he said.

Ricardo Icaza, president of United Food and Commercial Workers International Local 770, which represents the employees of all the supermarket chains involved in the deal, said that while there will be no layoffs, the current trend of larger supermarket chains hurts competition.

“With a smaller number of chains with more stores, there is less and less competition, both for consumers and for employees,” he said. “Albertson’s and Ralphs, all the stores, pay the same and give the same pensions. Having only three or four chains spells the end of true competition.”

Albertson’s will pay $9.8 billion in stock and assume $3.4 billion in debt to acquire American Stores. The huge number of divestitures makes it a much costlier deal, analysts say.

When Albertson’s announced the acquisition in August, the chain was expected to shed about 80 stores to satisfy regulators. But as the waiting period for FTC approval dragged on, many raised that estimate to about 120.

“It was a little bit of a setback,” said Patrick Schumann, a grocery analyst with St. Louis-based Edward Jones. “But I think they may have been a little bit conservative on the cost side when they announced this. I’m still excited about the company’s prospects going forward.”

Albertson’s shares dropped $1.56 to close at $54.38 on the New York Stock Exchange. Kroger slipped 56 cents to close at $55.38, also on the NYSE.

Times staff writer Ryan Cormier contributed to this report.

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Counting Changes

The merger between Albertson’s and American Stores includes the transfer of hundreds of stores to other supermarket companies. Here are the changes in store for California:

Albertson’s

Now: 177

After deal: 470

Ralphs

Now: 400

After deal: 440

Stater Bros.

Now: 112

After deal: 155

Vons

Now: 325

After deal: 329