Safeway Stores Inc. yesterday postponed a decision on a possible merger with Dart Group Corp., but said it would open talks with representatives of the Landover firm.
At the same time, Safeway said it would continue to explore other alternatives to the latest $3.9 billion offer made by Washington's Herbert H. Haft family, which owns Dart.
Safeway, after an all-day board of directors meeting, said it has already held discussions with an unidentified "third party with respect to a possible leveraged buyout of the company." Under a leveraged buyout, the company's public shares would be purchased by a private concern -- possibly including members of Safeway's current management. To finance the buyout, some of Safeway's assets would probably have to be sold.
Additionally, Safeway officials said, it is also studying a possible corporate restructuring in which the firm would buy back 30 percent of its stock. Under this scenario, an official said, it would sell some of its assets to finance the repurchase of stock "and the company would remain an independent entity."
Wall Street officials said it was unclear just where Safeway's talks with Dart would lead. Previously, Safeway had refused to talk with Dart.
Dart already has acquired 5.9 percent -- or 3.6 million shares -- of Safeway stock. Although the Safeway-Dart talks could lead to a merger, Safeway could also ask Dart to turn over its shares -- at a premium price, perhaps -- to the third party that is interested in making the leveraged buyout. Or Safeway could pay Dart a premium price for its shares to ward off a merger.
While the Safeway board said it needed more time to study Dart's latest offer, Safeway did conclude that Dart's initial proposal for the company was too low. Under the initial unsolicited proposal, issued July 9, Dart sought to buy all of the company's 61.1 million outstanding shares at $58 each, for a total acquisition price of $3.6 billion.
On Monday evening, hours before Safeway's board was scheduled to meet, Dart increased its offer to $64 a share -- as long as Safeway agreed to a friendly merger.
Wall Street sources said Dart raised its bid to make it more difficult for Safeway to reject its offer because the increased bid was contingent upon approval from Safeway's board. Unless Safeway came up with a higher counteroffer, its board would be hard pressed to explain why it would reject the $64 bid, financial analysts predicted.
Wall Street officials noted that Safeway's announcement yesterday indicated that the company had been unable to find a bidder to pay $64 or more a share.
Before the board's announcement yesterday, Safeway stock closed at $60.62 1/2, up $2.62 1/2.
Speculation in the supermarket industry about Safeway's possible actions intensified with Dart's higher bid. Industry officials all along have predicted that Safeway would vigorously contest the bid. With the company unable to find a bidder, or "white knight" for the chain, supermarket officials speculated that Safeway would have to sell off some of its assets to finance a leveraged buyout or recapitalization plan -- as Safeway noted yesterday.
One of the prime candidates that could be sold is the Washington-area grocery stores -- one of the chain's most profitable divisions. Safeway has 164 stores in the area.