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ALASKANS FILE SUIT TO STOP SAFEWAY-CARR MERGER

ANCHORAGE, Alaska -- The Alaska Public Interest Research Group here and five Alaska residents have filed a class action suit in U.S. Superior Court here against Safeway, Pleasanton, Calif., and Carr Gottstein Foods here to prevent the proposed merger of the two companies.The complaint asks that the court declare that the merger would violate an Alaska statute against business combinations that lessen

ANCHORAGE, Alaska -- The Alaska Public Interest Research Group here and five Alaska residents have filed a class action suit in U.S. Superior Court here against Safeway, Pleasanton, Calif., and Carr Gottstein Foods here to prevent the proposed merger of the two companies.

The complaint asks that the court declare that the merger would violate an Alaska statute against business combinations that lessen competition, and that the proposed merger be enjoined.

AkPIRG also filed a petition with the Federal Trade Commission in early October seeking to block the deal.

Safeway announced on Aug. 6 its plan to acquire the 49-store Carr chain, which operates 24 supermarkets, for $12.50 per share, or $330 million. Safeway currently operates 11 stores in Alaska.

The class action suit claims the merger violates a state statute that prohibits business combinations the effect of which "may be substantially to lessen competition or tend to create a monopoly in any line of commerce in the state or in a section of the state."

The suit says Safeway's acquisition of Carr could substantially lessen competition "by, among other things, eliminating an effective competitor, eliminating or reducing substantial actual and potential competition between Safeway and Carr and providing the merged entity with the ability to exercise market power."

In response to the complaint, Safeway said it "fully intends to aggressively defend the Carr Gottstein acquisition against any legal challenges."

"We do not believe there is any basis for a consumer class-action lawsuit regarding the transaction ... [and the company] is very disappointed that AkPIRG, which has a membership of less than one-half of 1% of Alaska's total population, continues to make allegations that are not based on facts."

Safeway said Alaska consumers would benefit from its "significant buying power and a lower cost of capital to build and remodel stores. In addition, through greater efficiencies in utilizing Carr's distribution facilities and increased offerings of ... private-label products, we expect to maintain overall lower prices and remain competitive in the marketplace."

Safeway also said it would continue to buy from Alaska vendors and growers, and support the local seafood industry, noting it is the largest purchaser of Alaska seafood in the United States.

In its own response, Carr Gottstein said, "We believe the state and FTC will protect the interests of the Alaskan consumer. The filing of this frivolous lawsuit is without merit or substance, and we will vigorously defend it.

"We continue to believe that, by strategically partnering ourselves with Safeway, the new combined company will offer tremendous benefits to our customers. The strengthened company will be able to provide lower overall prices while bringing additional service and benefits to Alaskan consumers."

In the complaint the plaintiffs allege that the merger would reduce competition in four urban markets in Alaska in which both companies and Fred Meyer Inc., Portland, Ore., compete -- Anchorage, Fairbanks, the Matanuska-Susitna Valley and the Kenai Peninsula -- as well as a fifth region, Eagle River, where Safeway and Carr are the only competitors.

According to the complaint, the merger could reduce competition "by eliminating actual potential competition between Safeway and Carr in other areas of the state where they would compete in the future."

In its response, Safeway said AkPIRG "has made a lot of 'guess-timates' about consumer costs while providing no foundation for its arguments."

Safeway said it has been "actively participating in a thorough and professional review conducted by the FTC and [state] attorney general's office regarding the proposed acquisition. We believe the appropriate federal and state agencies will adequately protect the interests of Alaska's consumers."

The chain also chided AkPIRG for not accepting its invitation "to meet to discuss the likely results of the transaction."

When AkPIRG filed its petition last month with the FTC, it said it did so because the state of Alaska "has refused to initiate antitrust litigation ... against the merger."

The petition asked the FTC to take "extraordinary measures to critically scrutinize the claims and data presented by Safeway/Carr [and to gain] the necessary understanding of the uniqueness and peculiarities of the Alaska market."

According to the petition, "If Carr is to be sold, it must be sold to a firm other than one of its present competitors."

AkPIRG said divestiture is not an adequate remedy in Alaska, as it has been in other consolidation moves around the U.S. "The market is already so highly concentrated that ... [any] additional concentration will surely result in higher prices to Alaska consumers," the petition said.

However, if the FTC opts to consider divestiture, the petition asks that Safeway be required to sell 10 stores to a purchaser other than Fred Meyer; to divest Carr's freight and warehouse operations; to maintain a separate identity for Carr for 10 years, and to allow a consumer committee to monitor compliance with these terms.

AkPIRG said the proposed acquisition "will result in monopoly, or near monopoly, power on the part of Safeway and will substantially lessen competition."

The petition cited market-share figures that give 53% of the Alaska market to Carr, 26% to Safeway and 19% to Fred Meyer.

AkPIRG asserted in the petition that potential entry by other competitors is unlikely, given the state's small population, geography, complex distribution and the lack of available land.

The petition argued that Carr's ability to develop a transportation and distribution system in the state "is a principal reason for its competitive advantage over Safeway and Fred Meyer ... If Carr's two very substantial competitors -- one of which [Safeway] is the second-largest grocery retailer in North America -- have been competing with Carr now for years at a competitive disadvantage with respect to Carr's warehouse, freight and distribution systems, then the market-entry barriers for a grocer who has never even been involved in Alaska must loom as large as Mt. McKinley."

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