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Smart & Final is in checkout line again

A buyout firm agrees to pay $813 million for the Southern California grocery store operator.

February 21, 2007|Adrian G. Uribarri | Times Staff Writer

It was a grocery that grew along with Southern California, opening in 1871 as a small store on Los Angeles Street, finding new owners named Mr. Smart and Mr. Final and expanding into a chain of small warehouse-style stores.

Now Smart & Final Inc. is changing again. The company said Tuesday that it had agreed to be acquired by New York private equity firm Apollo Management in the latest wave of money to flow into Southern California supermarkets.

With the $813-million deal, Apollo is investing in a chain of stores that are bigger than supermarkets but smaller than members-only clubs such as Costco. Executives of Smart & Final say the deal is a recipe for growing beyond the company's 254-store operation in the West.

Apollo "saw a unique niche company with great expansion potential," said Etienne Snollaerts, president and chief executive of Smart & Final. He said a new burst of capital would allow the company to grow without a dramatic shift in strategy: "I'm not expecting a lot of variation in what we're doing for our customers today."

The chain, which caters to operators of small restaurants, got its name from onetime owners J.S. Smart and H.D. Final.

Customer Steve England was at the Smart & Final on North Western Avenue in Los Angeles on Tuesday, stocking up on supplies for his business.

"The prices are as good or better, and I can do everything in one stop," said England, who has made weekly trips to the store since he started Expresso Experience, a solo coffee-cart operation, in 1994. "And they care." He said store workers set aside for him six cartons of nonfat milk to be sure he is well supplied.

About half of Smart & Final's 6,000 employees work in Southern California; the Commerce-based company also has stores in Northern California, five other Western states and northern Mexico.

The deal came nine months after the chain announced that it was exploring "strategic alternatives" to its ownership by a French supermarket company known as Groupe Casino, which wanted to reduce debt.

Under the acquisition accord, Apollo would pay $22 a share for the company, including Casino's 55% stake. The purchase price is 15% more than Smart & Final's closing share price Friday.

The deal must be approved by shareholders and regulators.

Shares of Smart & Final jumped $2.54, or 13%, on Tuesday to $21.60.

Steven McSorley, a retail analyst at Cathay Financial, said the deal would benefit both Smart & Final and its French majority owner.

Rick Phegley, Smart & Final's chief financial officer, said the company had been careful to develop its current markets before expanding elsewhere.

In addition to its flagship chain, the retailer operates 53 other stores in Washington, Oregon, Idaho and California, principally under the Smart Foodservice Cash & Carry and United Grocers Cash & Carry banners.

"The formats are complementary to each other, and our recent growth has emphasized them equally," Phegley said.

In recent years, Smart & Final divested itself of a series of food-distribution businesses acquired in the 1990s and exited the Florida market altogether.

"The value trends have been negative for a while," said Ivan Feinseth, an analyst at Matrix USA. "But Apollo is among the smartest buyers in the industry, so there must be some underlying assets there."

Leon Black, who sold junk bonds with Michael Milken in the 1980s, formed Apollo in 1990, which has owned stakes in Ralph's grocery and Dominick's Food. He was ranked at No. 160 on Forbes magazine's 2006 list of the 400 richest Americans.

Grocery chains have recently been a popular investment for buyout firms. Last year, Supervalu Inc. led a consortium that included drugstore chain CVS Corp., private equity firm Cerberus Capital Management and others to buy Albertsons Inc. in a deal valued at $17.4 billion.

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