Lucky Stores on Monday sold its automotive supply business for $155 million in cash as part of an extensive corporate restructuring designed to foil a takeover bid by New York investor Asher B. Edelman.
Lucky, which is shedding its specialty stores to concentrate on its grocery business, will use the proceeds to buy back shares. Kenneth A. Cope, Lucky senior vice president for administration, estimated that the company will report a $66-million after-tax gain on the sale of its Checker and Kragen auto supply stores to Schuck's Auto Supply.
The acquisition will transform Bellevue, Wash.-based Schuck's into the nation's largest automotive supply chain and give it a major presence in Southern California.
Gemco, Other Steps
The sale is part of a broad corporate reorganization at Lucky, which has also included the disposal of its Gemco discount stores and the sale of its Yellow Front chain, the spinoff of its Hancock Fabrics stores and the repurchase of 14.38 million shares, or 27% of those outstanding, at $40 each.
"This is another significant step in our restructuring program designed to enhance shareholder value and focus the company on its core food business," Lucky Chairman John M. Lillie said in a statement.
Dan Siewert III, president of privately held Schuck's, said that as a result of the acquisition, Schuck's "would be No. 1 in sales and stores" in the automotive supply field, ahead of competitors Pep Boys, Trak Auto and Chief. Siewert estimated that Schuck's sales would be around $400 million after the acquisition of 378 Checker and Kragen stores, which will nearly quintuple the size of Schuck's, from 95 stores to 473.
Checker and Kragen's sales were $303 million for the year ended Feb. 2, 1986, according to a recent Lucky filing with the Securities and Exchange Commission. Lucky reported sales of $6.23 billion for the same period.
Siewert called the acquisition a "perfect marriage," as Schuck's is strong in the Pacific Northwest and Checker and Kragen are especially strong in California, Arizona and Colorado. Despite the acquisition, Schuck's sales are just a fraction of the $8.6-billion automotive supply market, which is dominated by small "mom-and-pop" stores.
Schuck's, formerly part of Seattle-based Pay 'n Save, was taken private in a leveraged buyout in 1984 by brothers Eddie and Julius Trump, New York investors with retail and real estate interests. Schuck's has expanded rapidly under the Trumps. Siewert said it opened 25 stores this year and plans to open 100 more next year, primarily in the 12 Western states where Lucky's automotive chains operated.
As previously reported, the $575-million share buy-back will boost Lucky's debt since the repurchase is only partly funded with the proceeds from the sale of Lucky's specialty stores. As a result, Lucky expects to reduce its capital spending and omit its 29-cent per share fourth-quarter dividend.
Lucky's large-scale restructuring is intended to thwart Edelman's $1.89-billion offer for the Dublin, Calif.-based company, which operates 575 grocery stores including the Lucky supermarket chain. Edelman announced his bid for the company in September.