Lucky Stores will probably omit its fourth-quarter dividend and reduce its capital spending as a result of a costly corporate restructuring intended to ward off a takeover bid from New York investor Asher B. Edelman.
The Dublin, Calif., operator of Lucky supermarkets also disclosed that it approved "golden parachutes" worth a total of $9 million for 50 top executives just 11 days before Edelman revealed his bid for Lucky.
Lucky made these disclosures in a mailing to shareholders that includes an offer to repurchase 14.38 million shares, or 27% of the company, for $40 each. The $575-million repurchase will boost Lucky's debt from 72% of equity to nearly three times its equity.
The restructuring plan includes the sale of its chain of Gemco discount stores, the spinoff of its Hancock Fabrics chain and the disposal of its Checker automobile parts store and its Yellow Front general merchandise chain. Proceeds from those sales should reduce Lucky's debt.
Kenneth W. Cope, Lucky senior vice president for administration, said in a telephone interview Friday that the company's cash flow will face "some constraints" as a result of the restructuring and that the company's "dividend policy and capital payment policy have to fit that picture." Cope said management will recommend that Lucky's board omit its 29-cent-per-share fourth-quarter dividend and review the company's dividend policy. He said that Lucky usually pays out 50% to 60% of its profits in dividends while most supermarket operators distribute to shareholders just 20% to 30% of profits.
'Golden Parachutes' Approved
He said that the company plans to reduce its capital spending next year to $100 million from the $150 million currently spent on grocery operations. Capital spending will probably remain lower over the next two to three years, he said.
Cope said Lucky's board approved generous severence packages for its top managers so that the managers wouldn't switch jobs during a takeover battle. Those packages, often referred to as "golden parachutes," will become effective if the executives quit or are forced from their jobs within three years after the company changes control.
The compensation plans would give Lucky's top 16 executives a lump-sum payment equal to their annual salary through the termination date, plus the sum of twice the annual salary and the highest bonus paid within the five past years. The severence package would give Lucky Chairman John M. Lillie $1.2 million.