Newspaper article THE JOURNAL RECORD

Supermarket Restructuring Efforts May Open Up New Investment Opportunities

Newspaper article THE JOURNAL RECORD

Supermarket Restructuring Efforts May Open Up New Investment Opportunities

Article excerpt

Leverage, in the financial sense, is a word not normally associated with radishes, English muffins, London broils and deli salads. But the way the supermarket industry is going, it probably should be.

Recently, the Kroger Co., the nation's No. 2 supermarket chain, announced that it would restructure for the second time in two years, to fend off the unwanted attentions of the Haft family of Maryland.

In contrast to the first revamping, when it sold off hundreds of food and drug stores and paid down debt, Kroger may now take on huge obligations to finance the $3.2 billion restructuring, which may include a $40 dividend for each of the company's 78.6 million shares. To service the new debts, mainly bank loans, Kroger may sell assets, cut operating costs and reduce capital spending.

In the last two years or so, the rush to restructure reached epidemic proportions in the supermarket industry, as large and small chains frantically tried to fend off takeovers.

Regional and national supermarket chains, with their valuable real estate, good cash flow and resistance to recessions, have always been prime candidates for takeovers or restructurings. But the pace really picked up after Safeway Stores Inc., the nation's largest chain, restructured itself through a $4.24 billion leveraged buyout in November 1986.

From January 1987 to the present, there has been more than $10 billion in food industry restructurings, leveraged buyouts and takeovers, involving dozens of companies. And that does not include the most recent deal proposed for Kroger.

Several factors have facilitated the buyout activity in the food sector.

- What lower interest rates could not make possible, junk bonds did.

- The Reagan-era Federal Trade Commission raised few objections to food industry takeovers.

- Finally, the advent of some aggressive, single-minded takeover specialists, like the Haft family's Dart Group Corp., Asher Edelman and various buyout funds, led to outright takovers or forced buyouts and restructurings as protective measures.

The restructuring frenzy has reduced the pool of potential restructurers to a puddle. Some analysts believe Kroger may be the last big splash.

``The well is kind of dry,'' said Edward F. Comeau, retail food analyst for Oppenheimer & Co.

But while Wall Street may have to do without the $10 and $12 jumps in stock prices a typical supermarket restructuring or buyout brings, many analysts believe the sector now presents some golden opportunities for serious investors. …

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