The union representing most of Safeway's grocery store workers filed suit to block the buyout of Safeway Stores by the New York investment firm of Kohlberg Kravis Roberts & Co.
The suit, filed by the United Food and Commercial Workers, contends that the $4.1-billion leveraged buyout is a "fraudulent conveyance"--an illegal sale--because the company would be so loaded with debt that its capital would shrivel to an "unreasonably" small amount.
In a leveraged buyout, a company is purchased with borrowed funds that are repaid with cash generated by company operations or by selling assets.
The suit also charges that the sale violates the California unfair competition statute because it could remove a significant competitor from some markets if Safeway is forced to sell assets and close stores.
The union's lawsuit asks that the sale or encumberance of Safeway's assets be blocked and that a receiver be appointed for Safeway's properties.
Safeway and Kohlberg Kravis said the suit is "without merit" and would not interfere with Kohlberg Kravis' tender offer for Safeway's stock, which expired at midnight Thursday. The suit was filed Wednesday in Superior Court in Oakland, where Safeway is based.
No union official was available for comment.
The union, which believes that Safeway will close many of its nearly 2,000 U.S. stores, putting thousands of employees out of work, last week threatened to file an unfair labor practices grievance with the National Labor Relations Board.
But on Wednesday, Safeway and the union said they had agreed to meet after Labor Day to discuss the impact of the buyout. The union said it would postpone filing the grievance.
"We want to give the labor-management process a chance to work," Safeway and the union said in a joint announcement.