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Kohlberg Kravis Bids For Kroger

September 21, 1988

CINCINNATI (AP) _ Kohlberg Kravis Roberts & Co. is marching into a takeover battle again against Dart Group Corp., offering $4.6 billion to acquire Kroger Co. in a rival bid that tops Dart’s latest offer for the giant supermarket.

Kohlberg Kravis, the New York investment firm that has outbid Dart for three other corporations in recent years, offered to pay $58.50 a share in cash and securities for Kroger in a buyout aimed at keeping the company’s present management at the helm.

Kroger, which refused to meet with Kohlberg, indicated it would review the offer but also would continue pursuing its own proposed restructuring plan.

Kroger stock soared after the Kohlberg Kravis announcement, closing at $56.25 a share, up $3.50 from Monday in New York Stock Exchange composite trading.

Kohlberg Kravis offered to pay Kroger shareholders $50 in cash and securities valued at $8.50 for each share they own.

Dart, the Landover, Md.-based retailing company headed by the Haft family, has offered to pay $55 a share - $43 cash and securities valued at $12 - for each of Kroger’s 78.6 million outstanding shares, or about $4.32 billion.

Kohlberg Kravis, in a letter sent to Kroger Chairman Lyle Everingham, said its takeover plan would leave Kroger’s headquarters in Cincinnati and its current management in place.

The firm specializes in leveraged buyouts, in which a company is acquired mainly with borrowed funds that are repaid with cash raised by the target company’s cash flow or from the sale of its assets.

Kroger’s restructuring plan, valued at between $4.2 billion and $4.6 billion, was announced after learning that Hafts had received federal clearance to buy at least $15 million in Kroger stock.

The plan would pay $40 a share in cash, plus securities valued at $8 and a remaining publicly traded stock worth between $5 and $10.

Analysts earlier suggested that Kroger might turn to Kohlberg Kravis as a so-called ″white knight.″ Kohlberg Kravis won a hostile takeover battle for Beatrice Cos. in 1985, in which the Hafts were a bidder, and outbid the Hafts for Safeway Stores in 1986 and Stop & Shop Cos. earlier this year.

Kohlberg Kravis apparently offered to act as a white knight but was rebuffed by Kroger management. The firm, in its letter, revealed that its request to discuss a buyout offer in a face-to-face meeting with Kroger advisers was turned down.

″The entry of the Kohlbergs brings a whole new level of seriousness to this,″ said Gary Giblen, a vice president with Rotan Mosle Inc. in Houston.

Linda Morris, analyst with Provident National Bank in Pittsburgh, said shareholders may lean toward the KKR proposal because it offers more cash.

Furthermore, because the Hafts have a reputation for pushing companies into takeover battles and then making a big profit by selling their stock on those companies, there was uncertainty over whether Dart would pursue a costly takeover fight.

Morris called the KKR package ″a fair offer″ and said Kroger would be hard pressed to top it, even if it joined up with another buyout firm.

Morris speculated that Kohlberg Kravis was drawn to the deal partially because it wants to spend some of its considerable funds before the White House changes guard in November.

″They are sitting on an attractive war chest,″ she said, adding that the federal government’s attitude toward takeover activity could change once a new administration is elected.

In addition to bidding for Kroger, Kohlberg Kravis is engaged in a bidding war for publishing giant Macmillan. Macmillan has agreed to a $2.36 billion buyout led by KKR, but British publisher Robert Maxwell has made a competing $2.41 billion offer.

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