Lucky Stores, continuing to roll out moves to thwart investor Asher B. Edelman, announced plans on Friday to sell two specialty store units, spin off a third to shareholders and spend $575 million to buy back 28% of its stock.
With these steps, Lucky would complete a rapid-fire return to its core business--groceries--after years of diversification into membership discount stores, fabric shops, auto parts and general merchandise. The restructuring has come in response to Edelman's dogged pursuit since late September.
Stockholders will be asked at a special meeting Dec. 22 to clear the way for the buyback and other changes by approving the Dublin, Calif., company's reincorporation in Delaware--one of the steps that Lucky officials say is essential to the reorganization.
Lucky Chairman John M. Lillie said in a telephone interview that the $40-a-share tender offer for 14.38 million shares is subject to completion of the sales of the specialty units, the previously announced sale of Gemco and the reincorporation in Delaware, which provides more favorable treatment for such corporate changes.
Edelman Reviewing Plan
"If any one or all of those things failed to materialize, we'd have to re-evaluate the magnitude of the tender," he said. He added that the company plans to file by next Friday to begin the tender offer, with the transaction to be completed by year-end.
Reached in New York, Edelman said he is reviewing the restructuring plan and expects to have a response next week. The investor last week withdrew a $37-a-share bid for Lucky but said he might make another pass at the company if the stock price drops to an attractive level.
Wall Street sources said Edelman, who apparently boosted his stake in Lucky with a 500,000-share purchase Wednesday on the open market, was continuing to buy shares on Friday. Any purchases would boost his stake to more than the 5% that triggers a filing with the Securities and Exchange Commission. Such a filing must be made within 10 days of when the investor's stake reaches that level.
The unit to be spun off to shareholders next year is the profitable Hancock Textile unit, Lucky's largest specialty retailing operation. Two other units, Checker Auto Parts and Yellow Front general merchandise stores, are slated for sale.
"We're actively marketing them, and our goal is to have the sales completed by mid-December," Lillie said.
John Kosecoff, a supermarket analyst with First Manhattan in New York, said the reaction on Wall Street to Lucky's maneuvers was "generally positive."
"It appears that management has tried to strike a very good balance in their priorities and has given shareholders their best effort," he said. Kosecoff said he felt "comfortable" with estimates that the restructuring would have a value of between $37 and $38.50 a share.
Lucky is clearly caught in a balancing act of trying to achieve good value for shareholders while keeping the company competitive, observers noted.
"I think there was real concern by Lucky management that the Safeway Stores transaction was done at such a high price as to constrain that company's ability to be competitive because cash flow would have to be allocated to service debt," analyst Kosecoff said. "They have a role to serve as managers of an ongoing entity and to provide shareholders with the highest possible value in the near term.
"If one were to liquidate this company and not look for an ongoing entity, $41 could be achieved." Safeway agreed to a $4.1-billion leveraged buyout in July.
In trading on the New York Stock Exchange, Lucky shares rose $1 to $35 on volume of 1.38 million shares.
Hancock, the nation's largest fabric retailer, has 326 stores in 29 states, including 13 in California, operating under the Hancock and Minnesota Fabrics names. It had sales last year of $282 million and pretax income of $36 million.
The company said the distribution of shares in Hancock will be subject to a ruling by the Internal Revenue Service that the transaction will be tax free to Lucky and its shareholders.
The Checker auto parts unit has 376 stores in 12 states. The division's 175 stores in California operate under the Kragen name. The Yellow Front general merchandise unit, which sells apparel and other items for the outdoors, operates 109 locations in eight states, mainly in the Rocky Mountains.