EX-CHAIRMAN MULLS XHANGES FOR AMERICAN

JENNIFER L. BALJKO

SALT LAKE CITY -- Although industry observers say American Stores Co. here is on the right financial track, its former chairman and largest stockholder may have other things in mind for the company.

In a June 21 filing with the Securities and Exchange Commission, former chairman Lennie Sam Skaggs, who has an 18.3% stake in the company, said he was considering a number of strategies to enhance shareholder value. Options listed in the filing included an acquisition and disposition of securities, a merger, a liquidation, a sale or transfer of assets, a change in directors or management, and a change in the capitalization or dividend policy.

The food and drug retailer responded to the change of intent by tightening its poison pill -- an anti-takeover device that makes the company's stock less attractive to an outside buyer. The board of directors last week amended its shareholder rights plan, lowering the threshold at which rights are triggered from 20% to 10%. If more than 10% of the company's stock changes hands, it triggers the pill, which is prohibitively expensive for the entity buying the stock, several observers said, noting that the limit is rarely exceeded. In American Stores' case, each holder of a right, which often comes with stock ownership, would be able to purchase $125 of the company's stock for $62.50.

The amended plan continues to allow Skaggs, his wife and related trusts to keep their current holdings and to buy another 1%, but is intended to prevent an outsider from buying the block of stock, observers said. Skaggs is required to report any possible changes to the SEC because he owns more than 5% of American Stores' stock, but executives can choose not to pursue any of the listed strategies for the company, analysts said.

"The board's action was taken to protect the rights of all shareholders," said Joele Frank, a spokeswoman for American Stores. "The company has the fiduciary responsibility to protect all of the shareholders. This action is in the best interest of all of the shareholders."

American declined to comment on the move by Skaggs, and the board of directors affirmed that remaining an independent entity and continuing with its current strategy would be in the company's best interest, the company said. "The company has in place a strong management team to continue pursuit of our strategic plan for growth," Victor L. Lund, chairman and chief executive officer, said in a statement. Lund and Skaggs could not be reached for comment. Skaggs retired as chairman in 1995 after 16 years at the helm, but still serves on the board of directors.

The timing of Skaggs' filing has several industry observers raising their eyebrows and wondering if he will try to convince executives to move ahead with any enhancement strategies.

"The timing is a little strange. The company is finally reaching its stride and its stock is good," said Jonathan Ziegler, an analyst at Salomon Bros.' San Francisco office. "I am a little bit puzzled by what is happening behind the scenes that I don't know about. They are in a situation that sounds like it has become hostile. It appears that way in what is being said and done.

"For the shareholder, the question is what has management done for stock," he added. "It has been a long process, but I think the management is making their moves. And they seem to be hitting their stride."

"The company probably has been looking at these things [Skaggs' proposals], and none of these are a panacea," Smith Barney's Gary Giblen told SN. "The company is doing well. The board will not push for a change in strategy since it is doing well." Some items management has planned include budgeting $900 million this year for capital expenses, opening 100 new stores, moving to a central procurement program, improving warehouses and logistics, and introducing new merchandising and marketing programs. Those incentives are starting to reflect in sales and net income, which increased 5% and 19.2%, respectively, during the first quarter, said analysts.

"Current management has done an outstanding job of moving American Stores from an overleveraged collection of independent food chains in 1988 to a slimmed-down operating company with much more focus on growing its retail business," said Chuck Cerankosky, an analyst with Hancock Institutional Equity Services, Cleveland. "Their capital spending is higher and balance sheet is much stronger."

Though the filing indicates that Skaggs may not pursue any of the listed strategies, analysts differ on its potential effect.

"He has just informed the company that he wants to explore the possibility of selling all or part of the common stock he and his wife own. I don't think he is interested in anything besides getting out of the company," said Margaret Cannella, an analyst with Citicorp Securities, New York. "I think [Skaggs] will sell his stock on the open market or some sort of secondary offering. The second option could be share repurchasing and a third option would be to sell a block of stock. [Tightening the poison pill] makes that harder to do, but not impossible. Or this could all just blow over. We just don't know."

One analyst sees some benefits for American if Skaggs opts to sell his stock. According to Giblen , the retailer's earnings per share may rise and the chance of radical strategic changes may be reduced. "Share repurchase and retirement of Mr. Skaggs' position would be EPS-additive to 1997 EPS by at least 18 cents, or 6%," Giblen said in a Smith Barney report. "Curtailment of Mr. Skaggs' ownership and influence would be welcomed by the Street, as he sometimes promoted actions which suboptimized perceived shareholder value."

Under Skaggs' leadership, the company saw several strategic changes, such as moving its headquarters back and forth from Utah to California and deciding not to sell its Acme subsidiary after going to great lengths to do so, Giblen told SN.