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Safeway Suspends Efforts to Sell Chicago-Area Chain

Times Staff Writer

Safeway Inc. said Monday that it called off plans to sell the money-losing Dominick’s supermarket chain in Chicago, saying that a prospective buyer was unable to sign the chain’s unions to a new labor contract.

Pleasanton, Calif.-based Safeway, the nation’s third-largest supermarket company, said it would rather improve Dominick’s performance than sell the stores for a fire-sale price.

For the record:

12:00 AM, Dec. 06, 2003 FOR THE RECORD
Los Angeles Times Saturday December 06, 2003 Home Edition Main News Part A Page 2 National Desk 1 inches; 41 words Type of Material: Correction
Supermarket strike -- In its coverage of the supermarket strike and lockout that began Oct. 11, The Times has said repeatedly that the labor dispute affected 859 union grocery stores in Southern and Central California. In fact, 852 stores are affected.

A Safeway spokesman declined to name the Dominick’s bidder.

“I don’t know if there was a whole lot of choice in the matter,” said Jeff Tryka, a Delafield Hambrecht analyst who has a “buy” rating on the shares and doesn’t personally own the stock. “They couldn’t find a buyer that could pay the price they thought it was worth.”

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Safeway put the struggling 113-store chain up for sale a year ago after failing in its own efforts to negotiate a revised labor contract at Dominick’s. Supermarket chains have taken an increasingly hard line with their unions as they’ve faced greater pressure from giant discounters, including the nonunion Wal-Mart Stores Inc. chain.

Worries about the increased competition have fueled Safeway’s problems with labor unions in Southern California. The United Food and Commercial Workers went on strike against Safeway’s Vons and Pavilions on Oct. 11, after contract talks broke down. In a show of corporate solidarity, Kroger Co., which owns Ralphs, and Albertsons Inc. locked out their workers the next morning. In all, about 70,000 workers at 859 stores have been affected.

Dominick’s had been losing money ever since Safeway bought the chain in 1998 for $1.8 billion in cash and debt. Critics charged that Safeway had vastly overpaid; Los Angeles-based Yucaipa Cos. paid $693 million for the chain only three years earlier.

When Safeway decided to sell, it valued Dominick’s at $315 million.

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In the most recent quarter, Safeway reported a 28% decrease in profit, which it attributed to the weak economy and a write-down for underperforming acquisitions. The results included an $800,000 loss at Dominick’s.

Representatives from Chicago’s United Food and Commercial Workers local could not be reached for comment.

Yucaipa, the investment arm of supermarket billionaire Ron Burkle, bid $350 million to buy back Dominick’s. Safeway rejected the offer as inadequate, prompting Yucaipa to sue Safeway, accusing it of bargaining in bad faith.

Safeway countersued for breach of contract, fraud and “intentional interference” in its efforts to sell the chain.

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Shares of Safeway fell 4 cents to $21.06 on the New York Stock Exchange.

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Bloomberg News was used in compiling this report.


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