SMITTY'S SUPER VALU BEING SOLD TO YUCAIPA COS. FOR $141 MILLION

ELLIOT ZWIEBACH

PHOENIX -- After years of moving on and off the sales block, Smitty's Super Valu here is being sold by Steinberg International, Montreal, to Yucaipa Cos.

Yucaipa, based in Claremont, Calif., will pay $141 million for the 28-store chain, including $70 million in cash and $71 million in repayment and assumption of debts. The deal is expected to close in late June.

Smitty's annual sales volume is about $600 million, Yucaipa executives said.

Yucaipa is a private investment firm that is the controlling shareholder in Food 4 Less Supermarkets, a 259-store chain based in La Habra, Calif. The Smitty's acquisition is not expected to affect Yucaipa's ongoing negotiations to acquire Ralphs Grocery Co., Compton, Calif., industry sources told SN.

The transaction also involves the transfer of certain real-estate assets -- including a shopping center and other land holdings here -- to a Steinberg subsidiary. The real estate carries a book value of $27 million.

Steinberg said it intends to use proceeds from the sale to repay its banks and the proceeds from the future sale of the real estate to pay other creditors and shareholders.

Smitty's operates 25 stores here and three in Tucson. Its store base includes 19 super combination stores (averaging 105,000 square feet), six food and drug combination units (between 40,000 and 45,000 square feet) and three conventional stores using the Xtra banner.

Smitty's Phoenix stores have more than an 18% share of the local market, second to Fry's Food Stores, which has more than a 19% share.

One local observer told SN Smitty's has lost market share in the past few years.

"Yet, despite the problems of its parent company, Smitty's is still in a respectable position in this market and the sale to Yucaipa will give it the kind of solid financial backing it hasn't had in the past because of Steinberg's financial problems," the observer said.

Steinberg has had Smitty's up for sale at least three times since 1989, but pulled it off the market on two previous occasions, reportedly because it could not get the price it was looking for.

Financial pressure, including a bankruptcy filing under Canadian guidelines two years ago and the consequent need to come up with cash to satisfy its creditors, apparently prompted Steinberg to follow through with a sale this time, observers said.

"Steinberg has had to siphon off funds to pay its debts rather than generating capital to remodel and update the Smitty's stores," the observer told SN. "Now Smitty's will be able to obtain the additional capital it needs, and that should help get the stores up to speed and make them more competitive."

Yucaipa will operate Smitty's as a separate entity and retain the Smitty's name, said Ron Burkle, Yucaipa's managing partner.

"We are excited about entering the Arizona marketplace," Burkle said. "We think the Southwest will be at the center of economic growth over the next decade and that Phoenix and Tucson will be the driving force behind this expansion."

Burkle said Yucaipa intends to spend approximately $25 million over the next 18 months to remodel 15 Smitty's stores and upgrade five others.

It also plans to pursue an aggressive new-store policy, Burkle added. "We have several specific locations in mind, and we'll look at other locations in Phoenix and Tucson," he said.

Yucaipa owns distribution facilities in La Habra, 300 miles west of here, but Smitty's will continue to use the Phoenix division of Fleming Cos., Oklahoma City, as its primary supplier.