BURKLE INCREASES STAKE IN WILD OATS

MARK HAMSTRA

BOULDER, Colo. - Ron Burkle appears to be gaining more confidence in - and control of - Wild Oats Markets, based here.

Through funds affiliated with his investment firm, Los Angeles-based Yucaipa Cos., Burkle has increased his ownership of the natural food retailer to 14.9% by buying nearly 1.5 million shares of the company's stock this month, according to a filing with the Securities and Exchange Commission.

Yucaipa's initial investment in Wild Oats last year gave the company a 9.2% stake, for which it paid $25 million. Since then, the share price has risen by about 50%, making the most recent purchases much more expensive - an average of about $12.50 per share.

"That first investment you could say was him making an investment in a company that was down and out at a good price," said Scott VanWinkle, managing director, Canaccord Adams, Boston. "Now he's bought shares at a pretty high price, so he's making more than just an investment."

VanWinkle and other analysts said Burkle may be seeking to exercise more control at Wild Oats, which some suggested could eventually lead to his seeking to engineer a merger between the chain and another food retailer.

In its filing with the SEC, Yucaipa said it may "engage in discussions or negotiations with other persons or entities regarding potential strategic transactions involving [Wild Oats] and other supermarket and retail companies."

Investors who recall Yucaipa's highly profitable turnaround of Dominick's in Chicago and its knitting together of Kroger's West Coast holdings seem to be confident in Burkle's ability to do the same with Wild Oats, which has been a distant No. 2 behind Whole Foods Market, Austin, Texas, in the natural food retail space.

"I think most investors want to assume that they will [engineer a sale of Wild Oats to another operator] at some point," VanWinkle said. "The question is, at what price?"

Some analysts said Wild Oats, with its network of relatively small stores, faces a difficult challenge in its effort to become more competitive against both Whole Foods and traditional supermarkets like Safeway and others that are expanding their natural and organic offerings.

"We continue to feel there are structural issues with the company, and I think the stores just aren't big enough to compete with Whole foods in particular," said Andrew Wolf, analyst, BB&T Capital Markets, Richmond, Va. "They need to have more size, and they need to have more scale."

The stock hit a new 52-week high of $15.65 in the days following Burkle's investment and was up more than 10% through the first half of last week.