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Analysts Say Safeway May Have to Accept Dart Takeover Offer

July 23, 1986

SAN FRANCISCO (AP) _ Securities analysts speculated Wednesday that Safeway Stores Inc. may be forced to accept a $3.9 billion takeover bid by Dart Group Corp. because no ″white knight″ is likely to top the $64-a-share offer.

Even if another buyer does surface, major changes are probable in the makeup of the nation’s largest grocery chain, the market observers agreed.

″The only thing that seems certain is that Safeway is not going to remain as Safeway was before,″ said Albert M. Klein, research director at Edward A. Viner & Co. in New York.

″Either someone else will be in there running it or it will be restructured in some way,″ he said. ″But some sort of breakup appears imminent.″

Safeway’s directors on Tuesday said they needed more time to consider the offer, and authorized company representatives to meet with Dart Group officials. They also said the firm was considering restructuring and has held discussions with an unidentified third party, but added ’there is no assurance that such a third party will make a proposal for a leveraged buyout, that such a restructuring will occur or that contact with Dart will result in any agreement.″

Spokeswomen for both Oakland-based Safeway and Laurel, Md.-based Dart said Wednesday they had no further comment on the situation.

Safeway’s stock, which opened on the New York Stock Exchange Wednesday at $60.62 1/2 , was unchanged during the day, although it was the most5 active issue traded.

Keith Pinsoneault, research director for Sutro & Co. Inc. in San Francisco, said he would be surprised if Dart’s latest offer, proposed Monday, isn’t accepted. He noted Safeway’s stock was trading at around $40 a share two months ago when Dart launched its acquisition efforts by buying 5.9 percent of the supermarket chain’s stock.

″Sixty-four bucks seems like a pretty full price for Safeway at this time,″ he said. ″We would be surprised if that offer could be topped by a leveraged buyout or some other white knight-type situation. From a leveraged buyout point of view, $64 would be really stretching it.″

In a leveraged buyout, a person or persons acquires an organization, financing the acquisition with funds borrowed against future earnings or dispositions.

Sarah Stack, an analyst for Bateman Eichler, Hill Richards Inc. in Los Angeles, said the new Dart offer indicates that the retailer ″wants Safeway really badly.″

″The board of Safeway has a fiduciary responsibility to the shareholder to maximize shareholder value,″ she said. ″There’s no way that Safeway would be trading up to $64 in the next two to three years.... They (Dart officials) would be paying a 60-percent premium over the share price prior to the takeover activity, and that is pricey compared to the premium paid in most other takeover deals.″

Safeway has resisted takeover efforts and has said it wishes to remain independent. On June 18, it filed a federal lawsuit claiming the Dart Group partnership violated securities laws in acquiring its stake in Safeway. The suit contends that the real purpose of the stock purchases was to coerce Safeway into buying back a portion of its shares at a market premium in order to prevent a hostile takeover.

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