PLEASANTON, Calif. -- The combination of Safeway here and Vons Cos., Arcadia, Calif., would make Safeway the second-largest chain in the United States, with volume of approximately $22.6 billion.
1 Kroger Co., Cincinnati, whose 1996 volume is expected to be about $25 billion.
Currently, Safeway's volume for 1996 is estimated to be $17.2 billion at 1,052 stores, while Vons' volume is estimated at $5.4 billion at 325 stores.
The merger agreement calls for Safeway to exchange 1.425 shares of its common stock for each share of Vons stock -- an offer approximately 6% higher than the 1.34 shares it had originally offered to exchange when it proposed the merger Oct. 30.
Steve Burd, Safeway president and chief executive officer, said Safeway enriched the exchange ratio "because the real value of the transaction is earnings going forward, not the value of the shares on opening day. We believe [the higher ratio] will do a better job of enhancing earnings both in 1998 and beyond, and this is a better transaction for Safeway because Vons' performance and its prospects are much better than we had anticipated in October."
Safeway said the merger has been unanimously approved by a special committee of the Vons board of directors, comprised of directors who are not affiliated with Safeway; it must still be voted on by Vons shareholders, who will convene in a special meeting early next year following anticipated approvals for the deal by the Federal Trade Commission and the Securities and Exchange Commission.
Safeway said the actual dollar value of the transaction will not be determined until just before the deal is completed, by looking at a 10-day average on the price of Safeway's stock beginning 20 days prior to the special Vons' shareholders meeting.
The transaction would be accounted for as a purchase, and the exchange would not be taxable for Vons shareholders.
In an effort to further enhance earnings, Safeway said it has agreed to purchase 15 million shares of Safeway common stock from partnerships controlled by affiliates of Kohlberg Kravis Roberts & Co., New York, which has controlled the chain since orchestrating a leveraged buyout in 1986.
The partnerships own approximately 109 million shares of Safeway stock, or 49% of the total outstanding -- an amount that would be reduced following the repurchase to 94 million shares, or 38%, with a value of more than $3.6 billion.
The shares would be purchased immediately after completion of the Vons merger.
Safeway said the price per share for the repurchase would equal the market price per share as determined by the volume weighted average trading price on the New York Stock Exchange for the 10 consecutive trading days beginning 20 days before the Vons shareholder meeting, but not less than $38.375 per share, which was the closing price Friday, Dec. 13.
