GRAND UNION CONTROL BEING SOLD TO FUEL GROWTH PLAN

JENNIFER L. BALJKO

1NEW YORK -- Grand Union Co., Wayne, N.J., has agreed to turn over majority control to Shamrock Group, an investment company, in a move to fuel an aggressive growth plan.

At a press conference here last week, Grand Union officials said the 229-unit chain plans to sell $100 million of its preferred convertible stock to Shamrock, Burbank, Calif. -- a direct equity investment firm whose investment partners include the Roy E. Disney family and General Electric Pension Trust. When fully diluted, the stock would give the investment group a 58% to 61% stake in the metro New York/New Jersey supermarket chain.

Financial analysts called the deal a good way for Grand Union to jumpstart its store base.

The parties could close the deal as early as mid-September, pending approval by shareholders, bank lenders and senior noteholders. Putnam Investments Inc., currently Grand Union's largest stockholder with 31% of its common stock, fully supports the transaction, Grand Union reported.

Since emerging from Chapter 11 bankruptcy protection last year, Grand Union has been seeking ways to finance its long-term growth strategy, based largely on aggressive store upgrade and customer-service improvement programs, industry observers told SN. The stock sale, they said, would help the chain snare a greater competitive edge in the lucrative New York-New Jersey market.

Proceeds of the stock sale would supplement Grand Union's $240 million capital-expense project, which includes major interior renovations, new store openings and on-site replacements of 78 stores, said Roger E. Stangeland, chairman. The group's capital outlay would allow Grand Union to accomplish the projects over three years, he said, noting that it might have taken twice as long without the additional funds.

The agreement calls for the Shamrock Group to appoint a majority of members to the board of directors. There has been no word on who will be named, but Stangeland and other top-level managers would continue in their present positions.

It also would allow Grand Union to draw down funds in stages once the agreement is completed. Though Stangeland could not say how much the initial draw down would be, he said it was a significant amount.

"This is really a momentous milestone for all of the stake holders of Grand Union," Stangeland said. "We announced to the financial world at two conferences last winter that we would seek an equity infusion that would enable Grand Union to execute the store-network strategies more rapidly, and in that we have succeeded.

"This will give us strong financial partners with both resources and know-how," he added. "I have learned from personal experiences with them that Shamrock brings a history of strengthening a company's existing strategic initiatives. They bring a new zest to this business."

The most important element of the stock sale is that Grand Union would be able to step up its development of its M.A.S.T.E.R.S. program, which stands for Maximize All Space, Totally Expand the Right Stuff, said Joseph J. McCaig, Grand Union's president and chief executive officer. The program, designed to boost the number of products and variety in the stores, is part of the company's overall strategy to drum up sales and customer satisfaction. It ties in with other efforts, such as better category management, more competitive pricing and stronger produce and prepared meal offerings.

"The main thrust of our outlook plan is bringing our M.A.S.T.E.R.S. renovation concept to 50 of our most successful, irreplaceable stores. These stores have strong customer acceptance and excellent demographics for the potential of immediate and sustained sales growth," McCaig said. "All we have to do is get the 50 stores done as fast as we can and make sure that each one of those 50 stores is a greatly enhanced experience for our customers. The M.A.S.T.E.R.S. concept is a winning strategy within our strategy to win." The M.A.S.T.E.R.S. prototype was launched at stores in West Nyack and Monroe, N.Y., which reopened in the spring and have been highly successful, McCaig said. The remaining 28 cap-ex projects will be store enlargements and replacements.

The New York prototypes and the strong management team played an important role in attracting Shamrock to Grand Union, said Stanley P. Gold, Shamrock president and chief operating officer. The Grand Union agreement marks the first supermarket industry investment for the group, which focuses primarily on other retail outfits.

"We like to invest in management. What that means for Grand Union is that we have the utmost confidence in [Stangeland] and his team to pull off the strategy that they developed and which we think we are going to give them the means to fuel this kind of growth," Gold said. "I happen to think this is a very good marketplace. I think this management team has picked up on the kinds of things that are changing within the population -- the healthy trends, the healthy lifestyles, the convenience, the prepared meals."

The Shamrock investment will be a good opportunity for Grand Union to lift its reputation in its core market now that some of the company's financial troubles have faded, analysts told SN.

"This will definitely put some gas in their competitive tank," said Martin Murrer, senior vice president at Donaldson, Lufkin & Jenrette, New York, Grand Union's financial adviser for the transaction. "The opportunity that exists in the New York area is that you still have a relatively fragmented market, which is unlike other cities. While you have the significant chains here, it allows all of the operators to curve out different customer niches." According to Kenn Bann, senior vice president at Lehman Bros., New York, "It is obviously very positive in that it will allow [Grand Union] to accelerate their capital expense plan and put more toward better customer service, produce and take-home meals.

"It will definitely help their competitive position. They already have a lot of great locations in the metro New York area. It will make what they offer within the store much more competitive." "They have a store format that would work, they just had no money," said Gary Giblen, managing director of Smith Barney, New York. "It's a good company that had a bad capital structure. They had no money to keep up with the concept stores."