OAKLAND — A year after Safeway Stores agreed to go private to escape a hostile takeover by the Haft family of Washington, Chairman and Chief Executive Peter A. Magowan said Friday, "I wish that the whole thing had never happened."
Still, in a rare interview, the 44-year-old executive insisted that the leveraged buyout was "by far the best deal" for Safeway. A takeover by the Hafts, Magowan contended, "would have been a disaster for the company" and its employees.
To be sure, Safeway has had to sell nearly 450 stores to pay down more than $1 billion of the $4.6 billion in debt that resulted from the transaction. Safeway intends to keep its operations in Canada, California, Arizona, Oregon, Washington state and Washington, D.C.
Moreover, 661 Safeway employees were laid off at the corporate and division levels in the wake of the transaction. But Magowan contended that the Hafts would have sold even more stores and fired more workers had their bid prevailed. The Hafts, who made $150 million on their investment in Safeway, couldn't be reached for comment.
Overall, Magowan painted a generally bright picture of life after the leveraged buyout. Operating profit--before taxes and interest expense--jumped 52% in the first quarter to $100.9 million.
However, first-quarter interest expense of $166.1 million resulted in a net loss in the period of $81 million. Magowan said the first-quarter loss was "substantially lower than our plan," a trend that continued into the second period.
The executive sought to refute what he called "misconceptions" about leveraged buyouts. Service to customers, measured by employee man-hours, has actually increased since the buyout, he said, while the company continues to compete aggressively on price.
And Magowan attributed the 50% plunge in capital spending this year, to $300 million, to the divestiture of Safeway's fast-growing British operation and to the fact that many stores had been upgraded in recent years.
The executive said Safeway's ability to win wage and benefit concessions, the value of stores that might be sold and the company's need for cash to pay down debt will determine whether it continues to do business in such areas as Denver; El Paso; Houston; Kansas City, Mo.; Little Rock, Ark., and Oklahoma City.
"The discipline of all this debt we've taken on forces us to be impatient," he said.
He said that going private has allowed top management--which owns or has options to buy 10% of the company--to devote all its energies to the long-term development of the company.
"Public companies spend a lot of time courting Wall Street," he said. "We don't have to do that anymore."
But he acknowledged that Kohlberg Kravis Roberts & Co., the leveraged buyout firm that came to Safeway's rescue, intends eventually to sell part of its 90% stake in Safeway back to the public.