The Grand Union Co. yesterday made an offer to buy Colonial Stores Inc. of Atlanta for $114 million in cash.
If the merger is completed, it will create the eight largest food chain in the country, with sales of more than $2.5 billion and almost 850 stores from Vermont to Florida.
In a letter to Colonial, Grand Union president James Wood offered to buy all the stock of Colonial for $30 a share and said Grand Union might be willing to raise its bid.
Woods noted that the offer represents about a 50 percent premium over the market price of Colonial shares, which until this week traded around $20 on the New York Stock Exchange. Speculation about a possible merger pushed the price of the thinkly traded stock to $25 earlier this week. After the announcement yesterday, the shares jumped to $28 1/2.
In respone to the Grand Union offer, Colonial Chairman Ernest F. Boyce promised to "consider all aspects of the proposal including legal implications" and respond by July 10.
The "legal implications" referred to in the reply apparently are the anti-trust considerations involved in the merger of two of the biggest supermarket chains in the nation.
Grand Union, headquartered in Elmwood Park, N.J. ranks eleventh in the industry, with 474 stores, sales of $1.6 billion last year and profits of $14.7 million. It is the fifth largest chain in the Washington-Baltimore market with 48 stores and 5 percent of the food business.
Grand Union's 11-state territory stretches from the Canadian border to Southern Virginia and West Virginia, the only areas in which it competes directly with Colonial.
Colonial operates most of its 370 stores under the Big Star name and had sales last year of just over $1 billion earning $10.9 million. The chain's 70 supermarkets in the Richmond and Tidewater Virginia areas are the northern outpost of a territory that stretches south across six states to upper Florida.
Grand Union also has stores in Southern Florida, where it recently agreed to buy eight stores from Colonial. Negotiations for that purchase apparently produced Grand Union's offer to merge. A spokesman said Colonial had not been seeking a merger and did not solicit the Grand Union offer.
Grand Union is owned by Cavenham Ltd., an English company that is the third largest food processor and retailer in Europe, with total sales in excess of $3 billion.
Grand Union began a $150 million expansion program two years ago calling for 100 new stores by 1982. That plan will not be altered by the acquisition of Colonial, a Grand Ynion spokesman said.
Grand Union does 95 percent of its business in supermarkets, but is diversified into non-food retailing with 14 Grandway discount stores and 9 Grand catalog showrooms.
Colonial has traditionally avoided selling general merchandise in its stores. Many of it's Colonial super-markets have been converted into "low margin" Big Star outlets in recent years. It also runs some Richway Foods, K-Mart foods and Cooks stores.