SAN FRANCISCO — Dart Group, moving quickly in its effort to take over Safeway Stores, unleashed a five-state legal barrage on Wednesday to neutralize state laws that could get in its way.
The move came as Dart launched a $3.54-billion, or $58-a-share, cash tender offer for the nation's largest supermarket chain.
Safeway's stock climbed above the offering price and was the most actively traded issue on the New York Stock Exchange, closing at $58.12 1/2 a share, up $4.62 1/2, on volume of 5.2 million shares.
The market action suggests that some Wall Street arbitrageurs expect a higher offer might emerge from Dart, some third party or from Safeway itself, analysts said.
'Wide Range of Possibilities'
"Obviously, there's a wide range of possibilities," a Safeway spokeswoman said when asked whether Safeway's management might respond to the Dart bid with their own buyout offer for the company.
Safeway, in a brief statement, urged its shareholders "to take no action" on the "unsolicited" offer. The company and its advisers will "carefully and thoroughly" evaluate the bid before making a recommendation to shareholders by July 22, Safeway said.
Last month, with Safeway stock trading in the mid-40s, Chairman and Chief Executive Peter Magowan said that "there are significant additional values in Safeway." Magowan also contended that "the best interests of shareholders will be served by Safeway remaining an independent company."
Dart's bid is subject to several conditions, including its ability to secure debt and equity financing from investment banker Drexel Burnham Lambert Inc., a firm that has dominated the market for high-yield "junk" bonds.
Drexel said it is "highly confident" that it can obtain commitments for the private placement of up to $3.9 billion in debt and equity securities. The difference between the amount to be raised and the $3.54 billion needed to buy shares would be spent on legal and other fees, a Dart spokeswoman said.
The 50-page offering circular provided few details about the financing, although it did say that Dart, if successful, would "review" Safeway's assets, capitalization, operations, properties and management, among other things, "and consider what if any changes would be desirable."
Dart, a discount retailer controlled by the Haft family of Washington, added it had "no present plans" to liquidate Safeway, sell its assets or make other major changes.
Neutralize 'Poison Pill'
Dart also said the tender offer depends on its ability to neutralize Safeway's "poison pill" shareholder rights. Under those rights, Safeway's holders are entitled to buy stock in the surviving company for half price following a hostile takeover.
Safeway also has other defensive measures in place, including a "super-majority" bylaw requiring that 75% of its shareholders approve a merger unless it is supported by 80% of Safeway's directors.
Dart, which already holds a 5.9% stake in Safeway, filed suit in U.S. District Court in Maryland to invalidate a Maryland law that upholds such super-majority requirements.
Dart also filed suit to have the poison pill rights declared "null and void" under Maryland law.
In addition, Dart launched legal challenges of takeover statutes in Nebraska and South Carolina and of alcoholic beverage control laws in Arizona and California. The alcoholic beverage control laws could delay Safeway's takeover because Safeway owns about 100 Liquor Barn stores whose liquor licenses would have to be transferred in those states.
Analysts were divided on the prospects for Dart's bid. "I don't believe you have a seller who wants to sell and a buyer who wants to buy," said Robert Raiff, an analyst with Cyrus J. Lawrence Inc. of New York.
Debt Ratings Under Review
Mark Mandel, an analyst with Value Line Investment Survey Inc., said: "It looks like the market thinks a higher offer is coming."
Analysts said that as a defensive maneuver, Safeway might make its own tender offer for some or all of its shares.
That possibility led Moody's Investors Service to review the debt ratings for possible downgrading of Safeway as well as of Dart Group. Such reviews are common for acquiring companies, which often must take on additional debt to finance acquisitions.
In Safeway's case, the review was prompted by the possibility of the change in the company's financial position "should Safeway management take any defensive actions."
Moody's said that if Dart is successful with its bid, it might redeploy Safeway assets. "This could involve the sale of both domestic and foreign operations."
Dart's spokeswoman declined comment on the possibility of such asset sales. In response to a question, she added that Dart's offer "is a bona fide offer" and not an attempt to extract some kind of stock buyback plan or "greenmail" payment from Safeway.
In the past, Dart has made handsome profits by buying and later selling large stakes in such companies as Jack Eckerd Corp. and May Department Stores.