ST. LOUIS -- Schnuck Markets here said last week it will purchase the National Tea Co. retail operation here from Loblaw Cos., Toronto, reportedly for $215 million.
Following regulatory approval, Schnuck plans to sell National Tea's 29 New Orleans stores to Schwegmann Giant Super Markets, New Orleans, for an undisclosed price.
The deal would signal Loblaw's exit from the U.S. retailing business and would sharply increase Schnuck's regional market share.
National Tea operates 89 stores -- 60 in the St. Louis area and 29 in the New Orleans region.
Schnuck would retain most of the 60 Midwest stores, although it said it expects the Federal Trade Commission to require it to sell "a limited number" to other operators. Schwegmann reportedly plans to
spin off some of the smaller National Tea stores to independent operators.
The FTC is expected to give preliminary approval by early February, and final approval by late April.
National Tea's 89 stores have sales of about $1.2 billion. The acquisition would reportedly add about $800 million to Schnuck's sales base of $1.2 billion at 64 stores, and approximately $400 million to Schwegmann's base of $500 million at 18 stores.
National Tea executives could not be reached for comment. Loblaw began buying stock in National Tea in the 1970s and gained majority control in 1982.
Industry sources said National Tea stores have had flat sales for several years, and there may have been some lingering disillusionment about the operation following a 34-week strike in the New Orleans division in 1993.
Craig D. Schnuck, chairman and chief executive officer, said he approached Richard Currie, president of Loblaw Cos., several months ago about the Midwest stores. "But he said the company would not sell just those stores. If it would consider a sale at all, I was told, it would have to include the Southern stores as well.
"So I went about finding a purchaser for the Southern division, and after John Schwegmann [chief executive officer of Schwegmann] studied the deal and said he was interested, I reapproached Dick [Currie], and negotiations commenced."
Because Currie preferred negotiating with a single company, the two-step sale was devised, Schnuck said.
Schnuck operates its 64 stores in Missouri, Illinois, Indiana and Kansas; 50 are in metropolitan St. Louis. Of the 60 National Tea stores in the Midwest, 53 are in metropolitan St. Louis, two are in other parts of Missouri and five are in Illinois.
Schnuck said the acquisition would enable his company to compete more effectively with the growing number of retailers selling food here.
According to local estimates, Schnuck's market share among supermarket operators is 32.6%, National Tea controls 23.3%, Shop 'n Save has 20.3%, Dierbergs Markets has 11.9% and Aldi has 11.8%.
Schnuck pointed out that the chain's market share among all retailers that sell food is lower than the estimates cited among supermarket operators because of the presence of 120 discount chains, seven membership club stores, three supercenters, more than 100 drug stores and more than 300 specialty food stores.
Schnuck declined to say how many stores the chain might be required to sell until after preliminary FTC approval.
Besides the 60 stores, the acquisition would include National Tea's 80,000-square-foot headquarters, a 400,000-square-foot distribution center, a 60,000-square-foot leased frozen food warehouse and a 60,000-square-foot frozen dough bakery production facility. The sale to Schwegmann would include a leased distribution facility.
According to Schnuck, the chain intends to operate the St. Louis full-line distribution center until the inventory there has been consumed, then sell the property. It also plans to sell the headquarters, he said.
Excluded from the sale to Schnuck would be So Fresh, a Loblaw produce procurement operation that acquires goods for the chain's Canadian and U.S. operations plus other wholesale customers.
Schwegmann's 18 stores are in southern Louisiana, all but three in the New Orleans area. The 29 stores it would acquire from Schnuck include 26 in Louisiana, two in Mississippi and one in Alabama.
Schwegmann officials could not be reached for comment on the deal.
In New Orleans, Winn-Dixie is the market share leader with 28.5%, followed by Delchamps with 14%, Schwegmann's with 12%, National Tea with 9.5% and A&P with 9%.
The merger would boost Schwegmann's share to 21.5%, though local observers expect the chain to sell some of National Tea's smaller stores to area independents.
Marilyn Brophy, a securities analyst in the Toronto office of Levesque Beaubien Geoffrion, Montreal, said the sale by Loblaw of virtually all of its U.S. holdings would enable Loblaw to reduce debt, thereby lowering its interest expense, which would boost margins.