TROY, Mich. -- Industry analysts told SN last week they doubted Kmart Corp. here was on the verge of being acquired by a supermarket chain.
At the end of the previous week, published rumors of an impending purchase had driven Kmart stock up nearly 12% to $17 a share in a single day. At the close last Thursday, Kmart stock was selling for $15.50. The June 28 issue of Business Week (which appeared on newsstands June 18) said Safeway, Pleasanton, Calif., and Kroger Co., Cincinnati, were considering a purchase of Kmart, possibly for as much as $30 a share. Executives at Kmart, Kroger and Safeway declined to comment, and industry analysts expressed skepticism.
The analysts agreed that in the long-term Kmart would probably link up with a supermarket, but they doubted that the deal was on the verge of being consummated last week. "I think the idea that Kmart could link up with a food retailer makes sense," said Patrick McCormack, managing director at Deutsche Banc Alex Brown, New York. "A food retailer could help them by buying and distributing that merchandise for them."
McCormack said that Kmart's problem was that the supermarket chains were in no hurry to make a deal. "U.S. supermarkets are not ready" to merge with or acquire Kmart, McCormack said. "There is a tremendous amount of consolidation that can and will take place" inside the supermarket industry before the chains will want to merge with a non-supermarket company.
"Another problem is that Kmart is not a high-performing company," McCormack said. "It needs to make more progress." He estimated that purchase of the discounter by a food retailer is still "three to five years away."
In contrast, Wayne Hood, retailing analyst at Prudential Securities, Atlanta, told SN Kmart had already gone a long way toward getting its house in order. "Kmart's capital structure is much stronger now than four years ago," he said. He estimated a merger with a chain could come "in the next couple of years, if not sooner."
