ALBERTSONS SEES MORE ACQUISITION OPPORTUNITIES 2004-06-14 (1)

MARK HAMSTRA

SARASOTA, Fla. -- Albertsons has seen increased opportunities for acquisitions lately, but so far has found few that pass its screening for return on investment, Larry Johnston, chairman, president and chief executive officer, said at the company's annual shareholder meeting here last week.

"We continue to look for bolt-on acquisitions for all of our brands," he said, noting that current opportunities primarily involve individual stores or groups of stores rather than entire chains. He also noted that the recent $2.75 billion acquisition of Shaw's Supermarkets in New England is currently occupying much of the company's attention.

The Shaw's acquisition, which Johnston said boosts pro forma annual revenues to over $40 billion, was one of the few acquisition candidates the company has considered that met its stringent requirements for generating a return-on-capital investment, he said. Last year, he pointed out, Albertsons, which is based in Boise, Idaho, considered about 150 stores that Dallas-based Fleming put up for sale, but it only acquired five because the others were not projected to provide adequate returns.

Johnston spent much of the meeting responding to shareholder comments and questions about compensation plans, voting procedures and board nominations.

One shareholder, speaking on behalf of the United Brotherhood of Carpenters, Washington, suggested that Albertsons consider changing its Shaw's employment policies concerning new-store construction. He did not elaborate.

Gerald Armstrong, another shareholder, suggested that Albertsons consider acquiring Trader Joe's, the specialty grocery chain purchased in 1979 by the Germans Karl and Theo Albrecht, who also co-founded the Aldi supermarket chain. Theo Albrecht is also a principal in Markus Stiftung that owns 9.7% shares in Albertsons. Armstrong also said Albertsons should consider adding representatives from Albrecht to the board.

Johnston responded that the Albrecht ownership "has no interest in having a board seat," and added that he shares Armstrong's admiration of the Albrecht chains. Johnston also said leaders of the two companies "have had discussions from time to time." He stated that the nature of those talks was confidential.

Johnston said preliminary voting indicated that shareholders had approved several shareholder proposals, including a suggestion that any proposed severance agreements that exceed 2.99 times the executive's annual salary plus bonus be put before shareholders for approval.

John McIntyre, assistant to the secretary-treasurer of the International Union of Bricklayers and Allied Craftworkers, presented the proposal on behalf of the Trowel Trades S&P 500 Index Fund, Detroit.

"We're not seeking to tie the board's hands, but in the future we'd like to see the board submit these [severance packages] to a shareholder vote," he said in presenting the proposal.

Johnston said the board of directors had voted unanimously against the proposal, noting such proposals do not increase shareholder value and limit the company's flexibility in recruiting.

McIntyre said he was confident the board would adopt the proposal after shareholders recommended it. "It's really not a radical proposition," he told SN after the meeting. "Other industry leaders have adopted similar proposals. I fully expect that Albertsons will adopt that proposal."

Other proposals that the board will consider when it meets next in September include requests that directors be elected by a majority rather than by a plurality, and that any matter before the board be decided by a majority.

Shareholders also approved the election of three board members: Pamela Bailey, Teresa Beck and Beth Pritchard. The California Public Employees Retirement System, an Albertsons shareholder, had recommended voting against Bailey and Beck, the two incumbents.

Bailey is president and CEO of the Advanced Medical Technology Association. Beck is the former president of American Stores Corp., which merged with Albertsons in 1999.

Pritchard is president and CEO of Organized Living, a retailer of home and office storage products. Previously, she was president and CEO of Bath & Body Works.