LOS ANGELES -- The California attorney general is reviewing a potential merger between Ralphs Grocery Co. and Food 4 Less Supermarkets amid signs that a deal continues to gain momentum.
The attorney general, Dan Lungren, has apparently been studying the situation for some time, although that wasn't previously revealed. However, sources said he is not expected to render an opinion until after a definitive agreement is signed; then he is expected to approve the deal.
Although Lungren's predecessor raised objections six years ago to a proposed merger between Lucky Stores and Alpha Beta, observers said a Ralphs-Food 4 Less deal would be seen differently because the market is now far more open and competitive.
Sources said a deal was very close between Yucaipa Cos. here, owner of La Habra-based Food 4 Less, and Ralphs, Compton. A spokesman for the attorney general's office could not be reached for comment last week. Officials of Yucaipa and Ralphs couldn't be reached either.
Sources indicated that if a merger were completed, Alpha Beta, a unit of Food 4 Less, would be phased out; most of those units would convert to the Ralphs logo
and a small number probably would close. A small number of Ralphs was expected to be converted to the Food 4 Less warehouse store format, observers added.
Some Ralphs employees reportedly are concerned they will lose income and benefits if their stores are converted from conventional Ralphs to the Food 4 Less warehouse format. Warehouse stores operate under union contracts that pay about $3 an hour less in wages and $1 less in benefits, union sources said.
In a letter to Ralphs employees, Ric Icaza, president of United Food and Commercial Workers Union Local 770, the largest union local here, wrote:
"...Even if (Ralphs) stores are converted to a warehouse format, Food 4 Less is not Wal-Mart. Food 4 Less' union wages are still around $11-13 an hour...(and) health and welfare benefits are similar, and they are administered by the same trust fund.
"So are pensions, although these benefits are not as good as our conventional food/meat contract. There is also at present no retiree health and welfare coverage."
One of the union's goals in contract negotiations in 1996, Icaza said in the letter, would be to improve pension benefits for warehouse employees and to cover retirees under the health and welfare plans.
"Local 770 is not satisfied with pay, benefits and conditions at warehouse stores," Icaza wrote. "We've made some progress in improving them and hope to make more."
If any Ralphs stores are closed or converted to other formats, Icaza added, "Local 770 will insist that everything be done according to seniority. That means employees at a closed or converted store will be able to bump into another conventional store based on their seniority.
"The union will also push for transferred workers to carry their previous company seniority with them into new stores." If a Ralphs-Yucaipa deal is completed, the new entity would become the largest supermarket chain in the five-county area here. It would operate 364 stores, with combined sales of $4.93 billion and a 27% market share in the five counties.
Ralphs operates 165 stores, all under the Ralphs name, and Food 4 Less operates 199 locations under a variety of formats.
Yucaipa is expected to gain controlling interest in Ralphs by acquiring the 60% of Ralphs stock owned by Edward J. DeBartolo, chairman of the Youngstown, Ohio-based development company that bears his name.
The deal price, as previously reported, is expected to be $2.5 billion, with Yucaipa emerging as the dominant shareholder. The leading investor in new equity raised will reportedly be Apollo Advisers, a New York-based investment arm of Credit Lyonnaise, France, which currently owns less than 5% of Food 4 Less Supermarkets.