Dart Group Corp. yesterday jacked up its bid for Safeway Stores Inc. by $366 million, amid reports that Safeway's board of directors today would approve a vigorous defense against Dart.
Dart, in a letter sent to Safeway's board late yesterday, said it had increased its bid by $6 a share to $64 in cash for each of the 61.1 million outstanding shares -- making the acquisition worth $3.9 billion.
The letter was issued on the eve of Safeway's scheduled board meeting. Before the increased bid surfaced, Safeway was expected to make a counteroffer to thwart the initial $58-a-share offer made by Dart on July 9. Dart is a Landover, Md., holding company owned by Washington's Herbert H. Haft family, which founded the Dart drugstore chain, Trak Auto Corp. and Crown Books Corp.
Dart bought a 5.9 percent stake -- or 3.6 million shares -- in Safeway earlier this spring as its first step toward taking over the grocery-store chain.
Wall Street sources said Dart increased its bid after it became clear that Safeway planned to fight Dart's offer vigorously.
Although Safeway officials were being extremely secretive about their plans, sources close to the company said Safeway had been preparing a counteroffer in which the company's management would try to buy some or all of the outstanding shares. In either case, the company would have to take on more debt and probably be forced to sell some of its assets to finance any buyback of stock.
Some Wall Street sources surmised that Dart raised its bid after learning of speculation that Safeway was preparing a stock buyback of $60 a share. Others speculated that Safeway was preparing a counteroffer about $65 a share.
In a statement issued in response to the latest Dart bid, Safeway said its "board of directors will act in a manner that serves the best interests of all the company's stockholders. In the course of its deliberations, the board will consider this latest proposal from the Dart Group along with all other relevant information and take appropriate action."
Safeway had promised to issue a recommendation today on Dart's initial offer, and a statement still is expected.
Sources close to the company noted that Safeway had been expecting Dart to raise its bid after receiving a letter Dart sent to Safeway's board late last week. That letter, reaffirming Dart's interest in the $19.6 billion supermarket chain, said Dart would be willing to negotiate any aspects of its initial offer.
The $64 bid surprised some Wall Street analysts who earlier had called the $58-per-share price a fair and generous bid. "I'm shocked," said Harry Mortner of Cyrus J. Lawrence Inc. "It seems like a tremendous amount of money. It's just a fantastic offer. These guys the Haft family must be pretty serious."
Initially, Safeway and Wall Street analysts had discounted the Hafts' bid, claiming that it was just a ploy to get a handsome profit on their initial investment in Safeway stock. To get rid of the Hafts, Safeway would pay them a generous price for their stock, financial analysts and food-industry officials contended shortly after the bid was first made. But financial analysts now believe that the Hafts do indeed want to buy the grocery-store chain.
"I guess Dart really wants Safeway -- which I had questioned at the beginning," said Susan Schmierer of L. F. Rothschild, Unterberg, Towbin. "It's a higher price than anybody who bought stock three months ago would have ever expected." Safeway stock had been selling at about $40 a share on May 15, when the Hafts made their first purchase of the stock. Yesterday, it closed at $58, up $1.13.
In issuing its increased bid, Dart said it had been advised by its financial advisers, Drexel Burnham Lambert Inc., that "based on current conditions, it Drexel Burnham is highly confident it can obtain commitments for the private placement of debt and equity securities in order to provide the necessary financing.''