Albertson's Lucky merge; deal cuts local competition

SUN STAFF AND WIRE REPORTS

NEW YORK -- Albertson's Inc. is buying American Stores Co., owner of Sav-on and Lucky stores, for $8.3 billion to create the nation's biggest supermarket chain.

The deal, announced today, would combine more than 2,470 stores in 37 states, to take over the No. 1 spot from Cincinnati-based Kroger.

Albertson's corporate headquarters will remain in Boise, Idaho, and the company will keep its name. Albertson's intends to retain both companies' current store names, although some individual store names may change.

In Southern Nevada, American Stores operates 25 Lucky supermarkets, including one in Pahrump. The company has 20 free-standing Sav-on drug stores and nine pharmacies in Lucky stores.

Albertson's operates 18 stores in Southern Nevada.

The deal could reduce competition locally, where the other big players are Smith's Food & Drug and Von's.

The effect of the merger on Las Vegas employees and customers has yet to be determined, but an American Stores spokesman said today the Federal Trade Commission could order the sale of some stores to keep local competition alive.

One issue yet to be addressed is whether Lucky and Sav-on customers will keep their discount shopping cards -- Albertson's is the only big local player not offering such cards.

And a top executive for Wells Fargo Bank in Nevada said it's too early to tell whether the acquisition would have any impact on in-store banking at Albertson's or Lucky stores.

"We currently have contractual arrangements with Lucky's 24 Clark County stores so we don't anticipate any change in the relationship with Albertson's," said Bryan Waters, senior vice president of Wells Fargo, Nevada.

A spokeswoman for U.S. Bank, which operates in-store branches in 12 Albertson's supermarkets, said her company is also looking at what, if any, changes would occur with the acquisition.

Wells Fargo already has in-store banking agreements with Albertson's in California. Lucky is affiliated with Bank of America in California.

The deal, which must be approved by shareholders of both companies and regulators, has been approved by their boards of directors. Dates for shareholder meetings haven't been set.

An Albertson's official said the company expects the acquisition to be completed by the first quarter of 1999.

Albertson's officials said some jobs would be eliminated, most likely on the administrative level at American Stores. A spokesman told CNBC and the Dow Jones News Service that the size of reductions would be small relative to the total work force of the combined companies.

As supermarkets themselves have grown into vast emporiums, the companies that operate them in recent years have been striving to get ever bigger as well. Increased size gives the store companies greater strength in bargaining with suppliers.

The acquisition by Albertson's should strengthen the company's position in the Southwest. Albertson's needs more bulk to compete against Wal-Mart Stores Inc. and Kmart Corp., analysts said. Experts added that Albertson's could boost profit margins by running the acquired stores better and using its increased size to negotiate better terms with its suppliers.

According to Business Week's Aug. 10 edition, there's even been speculation that Kroger may be considering a merger with Von's owner Safeway, which was the No. 2 supermarket chain in sales last year, or may make a large acquisition on its own.

Albertson's operates in the Midwest, West and southern states. While American Stores is spread across the country, most of its stores are in California and Texas. American Stores also operates Osco Drug and Acme Markets and Jewel Food stores.

The acquisition represents Albertson's first foray into free-standing drug store operation with Osco and Sav-on as part of the transaction.

Gary Michael, chairman and chief executive of Albertson's, acknowledged the increased competitive pressure as a reason for the deal.

In addition to the $8.3 billion worth of stock Albertson's is paying for American Stores, the company will also assume responsibility for $3.4 billion worth of American Stores' debt.

American Stores shareholders are to receive 0.63 shares of Albertson's stock for each share of American Stores stock they own.

Based upon Albertson's closing stock price of $48.00 per share on July 31, 1998, the deal is worth $30.24 per share for American shareholders and American Stores shareholders would own 41.3 percent of Albertson's.

Michael is to remain as chairman and chief executive and Victor L. Lund, chairman and chief executive of American Stores, will be vice chairman of the combined company.

Following the merger, Albertson's expects a significant, though as yet unspecified, one-time reduction in its profits.

American Stores stock was up $3.81 1/4 at $27 in early trading on the New York Stock Exchange. Shares in Albertson's were down $2.68 3/4 at $45.31 1/4 on the NYSE.

THE SUN'S by Richard N. Velotta, the Associated Press and Bloomberg Business News contributed to this report.

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