The stock price of Safeway Stores Inc. increased yesterday amid rumors that the chain was about to be sold -- or had already been sold -- to a third party in an effort to thwart Dart Group Corp.'s $3.9 billion takeover bid for the world's largest supermarket.
The stock climbed to $61.68, up $1.68 from Thursday's close, with 1,344,000 shares exchanged, making it the eighth most actively traded stock on the New York Stock exchange.
Throughout the day yesterday, there were rumors that Safeway was making a leveraged-buyout deal with Kohlberg Kravis Roberts & Co., an investment house that specializes in leveraged buyouts.
According to Dart officials, Safeway was scheduled to meet yesterday with a third party to consider an alternative to Dart's offer of $64 a share for each of Safeway's 61.1 million outstanding shares. Dart is a Landover holding company owned by Washington's Herbert H. Haft family.
In a leveraged buyout, the publicly held stock of a company's is bought back by a third party that usually includes the company's current management, with the deal financed by the sale of some of the company's assets.
Safeway officials declined to comment on the speculation that KKR is buying the company. However, earlier this week, they had said there were exploring alternatives to Dart's offer.
KKR officials also declined to comment.
Dart put Safeway on notice late Thursday evening that it would vigorously contest any leveraged buyout at this point, particularly because Safeway has refused to talk with Dart despite repeated requests.
"It is clear that you are favoring another bidder at any cost," Dart wrote Safeway in a letter signed by Chairman Herbert H. Haft and his son Robert, who is Dart's president.
"This is particularly egregious when management may have an interest in the transaction," the Hafts wrote. "We reiterate our sole interest is to acquire the whole company."
In another letter sent yesterday morning, the Hafts repeated their previous requests to negotiate with Safeway. "All aspects of our offer are negotiable, including the price."
Dart officials yesterday said the company declined to raise its offer, despite a request from Safeway that it offer any improvements it wanted to make by yesterday morning.
Nonetheless, industry officials speculated that Dart almost certainly would raise its bid to counter any leveraged-buyout deal Safeway makes.
KKR is the leading firm specializing in leveraged buyouts, having led two of the largest recent takeovers, including the $6.2 billion acquisition of Beatrice Cos. Inc. and the $2.5 billion acquisition of Storer Communications Corp. Because its track record of investing in takeovers is so good, KKR has billions of dollars of pension fund assets and bank loans at its disposal to invest in buyouts.
To finance the buyout, Safeway is expected to have to sell some of its assets. Many industry experts predict that the most likely assets to be spun off include Safeway's foreign operations as well as operations in the Washington-Baltimore area, where the company has 160 stores. The Washington area is one of the chain's most profitable and therefore could fetch considerably more money than other areas where the Safeway is locked into bitter competition, such as in Richmond and several midwestern cities.