CERTIFIED (CALIF.) AND UNITED GROCERS SIGN MERGER DEAL

ELLIOT ZWIEBACH

LOS ANGELES -- Two regional retailer-owned cooperatives -- Certified Grocers of California here and United Grocers, Portland, Ore. -- said last week they have signed a letter of understanding to merge into a single entity, possibly under a new name.

Completion of the merger is scheduled for June.

The resulting company would have combined annual sales of $3 billion, including $1.8 billion from Certified and $1.2 billion from United Grocers. The companies said Alfred A. Plamann, president and chief executive officer of Certified, would become CEO of the new organization when the deal is completed; no other management positions were indicated.

According to Plamann, the new post-merger entity could serve as a magnet for other retailer-owned cooperatives, particularly in the western United States. "The conceptual framework of the merger is such that it would allow other co-ops, if they were interested, to join us," he told SN.

"If this merger proves to be a good solution to cooperative growth, then our intent would be to entertain interest by other companies, on an co-op by co-op basis, to join with us."

Plamann said it has not yet been determined if the new entity would operate under a single name or as a holding company with separate Certified and UG divisions, though the latter approach seems more likely at this time, he said.

"We want the UG operation to be able to meet the needs of the Oregon marketplace, and we would like to maintain Certified's own strong name recognition in southern California," he explained. "However, that does not preclude the possibility that the new entity could take the name of one company or the other, but the likelihood is we will operate under some other corporate name."

Plamann said management and corporate executives could be split between here and Portland. "The objective is to focus on the needs of supermarket retailers in each location," he pointed out.

Lou Amen, chairman of Certified and owner of Super A Foods, Paramount, Calif., called the pending merger with UG "a landmark transaction that will assure the longterm success of independent retail grocers throughout California, Oregon and the western United States. By merging these companies, we will be creating a highly efficient organization with greatly improved buying power and marketplace clout."

Charles Carlbom, senior executive for mergers and acquisitions at UG, said, "By addressing the cost pressures that independent grocers face, this merger will ensure that consumers still have the choice to shop at independently owned grocery stores in the future."

Carlbom said the two co-ops began talking about possible joint-venture projects about six months ago, "and as we worked through those issues, the chemistry of the two companies was so good and the teams working together seemed to be so close that the discussions turned to a merger about three months ago.

Carlbom, who came out of retirement in 1997 to head UG and stepped down to take his current position late last year, told SN he will retire again after the merger is completed.

Plamann said the merger evolved from discussions "of how we could cut costs and redundant activities."

The non-binding letter of understanding between Certified and UG outlines the creation of a governing body consisting of a 24-member board of directors that will be comprised of the existing boards of each organization.

The letter also says that existing equity for stockholders of both companies will be preserved and carried forward in the new entity.

Still to be determined, besides the name, are issues involving corporate governance, headquarters location and warehouse disposition, Carlbom told SN.

The companies said the merger will result in reduced costs gained through consolidation of facilities, increased buying power and streamlined administrative operations, which will enable the new company to offer more competitive pricing and a broader array of products.