SPARTAN INVESTOR FACES CHALLENGES

Mark Hamstra

NEW YORK -- Loeb Partners Corp. here may have to either dig deeper into its pockets or be willing to wait a year or more if it wants to effect any major changes at Spartan Stores.

The investment group, which has accumulated a 7% stake in Spartan to become its largest shareholder, is seeking to force the Grand Rapids, Mich.-based wholesaler to put itself up for sale. It is also trying to nominate two directors to Spartan's board at the company's annual meeting, which is expected to take place in August.

According to managers at a firm that specializes in analyzing takeover defenses, Spartan is fairly well positioned to keep Loeb at bay for a while.

Among the factors working in Spartan's favor is that it has a classified board of directors in which only one-third of the seats become available each year, according to Jim Mallea, a manager at FactSet TrueCourse, a Newark, N.J.-based firm specializing in takeover defenses.

"Having a classified board helps defend the company," he said. "If they didn't have a classified board, Loeb could have tried to replace all the directors and take control of the board. This way they will have to wait until next year's annual meeting before they can get a majority of the board seats."

Spartan has three board seats to fill this year. Loeb said in filings with the Securities and Exchange Commission that it would support one of Spartan's nominations in addition to the two directors it has proposed.

Working against Spartan is the fact that it has no "poison pill" provision in its bylaws that would prevent Loeb from continuing to buy more Spartan stock on the open market, which could help it get its directors elected or could lead to Loeb eventually seeking to make an offer itself for all of Spartan's shares.

FactSet TrueCourse gives Spartan a takeover defense rating of "6" on a scale of 1 to 10, about average for wholesalers of non-durable goods. Supervalu and Nash Finch, two Minneapolis-based wholesalers who have been reported as potential buyers of Spartan, have takeover defense ratings of 9.25 and 10, respectively, according to FactSet TrueCourse.

Spartan has several other procedural rules in place that could serve to slow down any effort by Loeb to gain more control of the company. Although Spartan does not require a supermajority (two-thirds) vote to remove a director, it does require that shareholders seeking to have a director removed from the board must show "good cause," making it much more difficult for dissident shareholders to gain board seats. Spartan also does not allow shareholders to call special meetings, which means that all of its proposals have to be processed though Spartan's annual meeting of shareholders.

As reported in the May 23 issue of SN, Loeb is seeking to introduce a proposal calling on Spartan's management to seek a buyer for the company at this year's meeting, but a provision in Spartan's bylaws requiring 120 days' notice may prevent it from doing so.

"Many times companies are able to keep proposals from being voted on based on procedural issues," said John Laide, another manager at FactSet TrueCourse.

Loeb could not be reached for comment.

The company has a history of activist investing in small and midsized firms. Earlier this month, Loeb proposed to acquire fashion catalog company Blair Corp., Warren, Pa., for about $297 million, or $36 per share, in a friendly takeover. Blair, which recently was forced buy other activist investors to divest part of its operations, said it a prepared statement that it was reviewing Loeb's offer.

Other companies in which Loeb has invested include Acorda Therapeutics, a biotechnology firm based in Hawthorne, N.Y.; Globalstar, a Milpitas, Calif.-based satellite communications company; and American HomePatient, a Nashville, Tenn.-based provider of home health care services.