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Psst--Want to Buy the Ralphs Grocery Chain?

February 11, 1988|MARTHA GROVES | Times Staff Writer

The search is on for a buyer for Ralphs supermarkets.

While Federated Department Stores has not formally decided to sell any of its divisions, it has begun to sound out potential bidders for the Southern California supermarket chain as it devises a plan to avoid a takeover by Canadian developer Campeau Corp.

A six-page confidential dossier on the supermarket chain has been quietly sent to about a dozen interested parties by the retailer's investment bankers, and it seems to showcase Ralphs as a prize.

The report says that the grocery company's operating income nearly doubled in the last year and that its pretax profit margin is nearly double the industry standard.

"This is a sensational chain," said one rival supermarket executive who saw the document.

Meanwhile, Toronto-based Campeau Corp. continued to keep the flame burning under the Federated kettle. It announced Wednesday that it is renewing a sweetened $61-a-share offer for the retailer and said it has arranged $660 million in equity financing for the transaction. Edward J. DeBartolo Corp., a Youngstown, Ohio, developer, would provide a $400-million loan, with Olympia & York Developments in Toronto providing $260 million in equity securities of Campeau Corp.

As for Ralphs, there seems to be no shortage of potential buyers--including the current management.

"There are a lot of candidates," said Roger E. Stangeland, chairman of Vons in El Monte. "It's a prize company. It's just a matter of under what environment it is for sale. Does it have to be a quick sale and does it have to be for cash?"

Under one likely scenario, Ralphs' well-regarded management, Chairman Byron Allumbaugh and President Patrick W. Collins, would lead a buyout. The two, along with eight other senior managers, have been in place since 1976.

While observers note that financing for a buyout might be tough to come by, they still rank this as a good alternative. However, one industry analyst noted that such a deal would probably bring in a price about 10% less than if another company bought the chain.

Albertson's Mentioned

By widespread industry estimates, a Ralphs sale could bring in at least $500 million to $600 million, with the bidding likely to go higher if Federated does not have to launch a fire sale.

As for other would-be buyers, speculation continues to swirl around Albertson's, a Boise, Ida., chain with 110 stores in California that has been seeking a greater presence here for the last 10 years. But Vice Chairman Gary Michael said: "Nothing has happened. I don't think it's for sale. If the time came that somebody said, 'We're definitely going to sell,' we'd take a look at it."

Other candidates mentioned frequently are Lucky Stores, based in Dublin, Calif.; American Stores, which owns Alpha Beta; Kroger, based in Cincinnati, Ohio, and Ahold, a Dutch retailing giant that has made several acquisitions of regional grocery chains in the United States.

A purchase by a chain that already has a significant number of stores here, however, would undoubtedly have to be approved by the Federal Trade Commission, which studies such deals to determine whether they would reduce competition. It is now scrutinizing the pending $408-million acquisition by Vons of Safeway's 172 stores in Southern California.

The Ralphs document, sent out by Shearson Lehman Hutton and Goldman, Sachs & Co., paints a portrait of a big cash cow that has grown and prospered since Federated bought the company about 20 years ago for $60 million. It also gives an indication why Federated, which owns primarily department and specialty stores such as Bullock's, Bloomingdale's and I. Magnin, has not yet sold the operation, even though it is the "square peg in a world of circles," as one competing supermarket executive put it.

Good Profit Margins

Prominent in the financial data is an estimate that the 129-store Ralphs division is expected to post 1987 income before overhead, interest and taxes of $102.8 million, up from $59.2 million the year before. The 1987 operating income would be on estimated sales of $2.26 billion.

The document also shows that the Compton-based company had a pretax profit margin of 4.6% in 1987, more than double the industry average of about 2%. Ralphs' after-tax margins are also estimated by sources to be double the industry average of 1% to 1.5%.

A source close to Federated said the document offers "no assurance that Ralphs would be sold." Wall Street sources noted that similar dossiers have been prepared on all other Federated divisions, as well as on the company as a whole.

One source said that "this kind of breakdown is standard" when a company is considering a restructuring or sale of assets, as Federated is.

In Ralphs' case, however, observers uniformly agree that the likelihood of a sale is far greater than with most other Federated divisions.

In composite New York Stock Exchange trading, Federated shares dropped 37.5 cents to $57.50.

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