Pic 'N' Save, which has waged a 3 1/2-month battle against an investment group, on Tuesday said that Lewis B. Merrifield will resign as chairman and that it has cut its corporate staff by 20%.
The Dominguez-based close-out store chain also said that a search for an outside buyer ended with "no satisfactory offers" and that it might expand its $60-million stock buyback program.
Merrifield will step down as chairman and president at the beginning of next year. His departure satisfies one of the goals of David Batchelder, a protege of takeover artist T. Boone Pickens and leader of the investment group, Girard Partners, that is pursuing Pic 'N' Save.
"Without Girard Partners or Mr. Batchelder, you would not have had these actions," said securities analyst William D. Tichy with Dean Witter Reynolds in San Francisco. The resignation "was probably part of the compromise that the board had to make and reach in terms of satisfying its objectives. It seems pretty clear that if Mr. Batchelder were in charge, Merrifield would have been a casualty," too.
But company officials said Merrifield intended to step down all along following the completion of a corporate expansion program. "He was brought in to do that job and he accomplished it," said a spokesman. "Basically, that job is over with."
During two long interviews with a reporter in June, however, Merrifield gave no indication that he was interested in leaving.
"I've loved this company for a long time," said Merrifield, who joined Pic 'N' Save's board in 1971 after doing legal work for the firm. "Right now what I'm doing is (running) the company, and I'm enjoying it enormously."
Whether Merrifield's resignation and the company's restructuring will appease Girard Partners and Batchelder was not clear. In a statement, the company said that "over the past several days it has been in discussions with Girard Partners, L.P. to try to find a way to avoid resumption of a proxy fight, but that Girard's demands were unacceptable to the board."
On Monday, the truce in that proxy fight ended, and Girard said in a filing with the Securities and Exchange Commission that its slate of board nominees will push for a stock buyback or extraordinary dividend. Board elections are scheduled to take place during the annual shareholders meeting Aug. 29.
The company's announcement was received coolly on Wall Street, where Pic 'N' Save shares lost 62 1/2 cents to close at $10 in over-the-counter trading Tuesday. Volume was heavy, with 535,600 shares changing hands.
"Shareholders were hoping that there would be someone from the outside who would come in and buy the stock," said retailing industry analyst Thomas H. Tashjian at Seidler Amdec Securities in Los Angeles. "What we are seeing is the exit of those shareholders."
Girard owns nearly 2.4 million Pic 'N' Save shares, which were purchased earlier this year for about $25 million. Based on Tuesday's closing price for Pic 'N' Save stock, Girard has so far suffered a $1.3-million paper loss on its holdings.
Merrifield was praised for instilling a sense of professionalism at Pic 'N' Save but criticized for lacking retailing instincts. The former securities lawyer--who is paid nearly $1 million a year to head the retailer--launched an ambitious and costly expansion of Pic 'N' Save that led to a 34% decline in earnings last year.
"By the end of this year most of our expansion, modernization and renovation should be behind us," Merrifield said in a statement. "Most of what I wanted to accomplish will be done and I have recommended to the board that it find someone with strong merchandising capabilities to maximize the potential that the company now has and begin managing the company in accordance with our new strategy of maximizing cash flow."
As part of the management shake-up, former Pic 'N' Save Chief Executive Arthur Frankel--a current board member--will resume his position as chairman. The company said it will begin a search to find a new president and chief executive, "whose areas would include merchandising."