Wall Street expectations of a bidding war over Safeway Stores Inc. cooled again yesterday as the stock fell in heavy trading for the second day.
The stock declined 3/8 to 65 1/8 on volume of 1.7 million shares, making it the fourth-most-actively-traded stock on the New York Stock Exchange.
That followed a decline the day before of $1, on volume of 2.2 million, when it was the most-actively-traded stock.
Safeway stock had climbed $4 5/8 to close at $66 1/2 on Monday following the announcement Sunday that the company's directors had agreed to sell the company to Kohlberg Kravis Roberts & Co. for $69 a share, or $4.2 billion.
Excitement about that deal fueled some food-industry speculation that the price of the stock could be pushed as high as $75 a share if Dart Group Corp. chose to pursue its hostile takeover attempt by raising its bid of $64 a share, or $3.9 billion.
But, several analysts expressed concern yesterday that the $69-a-share price may be too high and openly wondered whether the company's assets and cash flow could support the debt that would be incurred.
"I think the bidding has exceeded the value," said William N. Smith, an analyst with Smith Barney, Harris Upham. "I don't think you'd find anyone who thought it would go over $61 a share ."
Smith said he could not see why investors would want to buy into a company "that will be severely hampered by debt . . . I'd feel stuck."
Another analyst worried that the debt burden could constrain Safeway from making the capital expenditures required to make its aging chain of supermarkets more competitive.
Dart made no response to the KKR offer yesterday, but analysts speculated that Dart's representatives were negotiating with KKR on ways for Dart to withdraw from the takeover battle, as was reported yesterday by the Wall Street Journal.
Wall Street experts suggest that neither side wants the acquisition price to go higher and that Dart was negotiating the sale of its 3.6 million shares of Safeway stock.
The complex KKR takeover would pay $69 per share in cash for the first 45 million shares or 73 percent of Safeway stock, and then merge the supermarket giant into a newly created company called SSI Holdings Corp. In a second step, SSI would swap each remaining Safeway share for debentures -- a form of security -- worth $61.50 and a warrant to buy SSI stock if the company makes a public offering. Safeway has placed no value on the warrants.
Dart may agree to withdraw if paid cash, and not debentures, for its shares, some observers said.