MERGERS AND INTEGRATIONS 1999-02-22 (3)

DAVID ORGEL

NEW YORK -- Mergers will still be hot news in 1999, but integration of newly acquired operations will also take the spotlight.

Supermarket companies will delve into the challenges of melding businesses, and those that succeed will have powerful integration models to use for future acquisitions.

"1999 will be the year of integration and executing of strategies," said Ed Comeau, vice president at Donaldson, Lufkin & Jenrette, at DLJ's Food & Drug Retailing Conference here earlier this month. His opinion was borne out by a string of presentations from supermarket top executives who said they are building a knowledge base that will help fuel further industry consolidation.

Kroger's Co.'s megamerger with Fred Meyer Inc., set to close later this year, has spawned "integration planning, which is moving rapidly," said Robert G. Miller, vice chairman and chief executive officer of Fred Meyer, Portland, Ore.

"We've formed 14 integration teams and the goal is to operate as a single company on day one after the merger is complete."

Joseph A. Pichler, chairman and CEO of Kroger Co., Cincinnati, said, "There are a lot of opportunities for clean economic synergies, but the real opportunity is in merchandising and growth." He cited private-label purchasing and rationalization of manufacturing as areas that are being pursued.

Companies participating in megadeals aren't shutting the door to further acquisitions. Albertson's, Boise, Idaho, whose merger with American Stores Co., Salt Lake City, is set to close within the next few months, may use the lessons from that integration to help with future corporate marriages, said A. Craig Olson, Albertson's senior vice president of finance and chief financial officer.

The company "is learning a lot through this process about how to manage change," he said. "We plan to continue to look aggressively" when other potential acquisitions become available.

Richard L. King, Albertson's president and chief operating officer, said the company would consider both fill-in acquisitions and new market entries. "We still have people working on acquisitions. Anything that becomes available we'll look at."

Safeway, Pleasanton, Calif., is counting on the experience it's gained integrating companies to fuel success in future acquisitions. "We think we're the most experienced at integrating," said Steven A. Burd, chairman, president and CEO. "We've integrated and blended our regions; that's a blueprint for future acquisitions." Safeway has recently completed acquisition deals for Vons and Dominick's Supermarkets, and is likely to close its Carr Gottstein Foods merger in the second quarter.

"We transfer best practices from one market to the next," Burd said.

"Acquisitions don't have to be contiguous to existing operations."

Food Lion, Salisbury, N.C., which acquired Kash n' Karry Food Stores, Tampa, Fla., continues to "look aggressively" for acquisitions as the best approach to expanding into new market areas, said Tom E. Smith, president and CEO.

"Kash n' Karry was a good model," he said. "We can take a company, leave it as the same operation, but add a lot of Food Lion to it to make it more successful."

Pointing to the changing dynamics of acquisitions was Blythe J. McGarvie, executive vice president and chief financial officer of Hannaford Bros., Scarborough, Maine. McGarvie, who said the company is "always looking for acquisitions," noted that the price of deals continues to surge. "Four years ago, the going rate was 6.5 times EBITDA, but now 10 times is the going rate," she said. "Our most important acquisition criteria is strategic fit. Can a company be adapted into our culture and add processes and value?"

There are still some major operators side-stepping the consolidation game as they first get their own houses in order. One of those is A&P, Montvale, N.J., which is moving forward on a multistep strategic plan to boost operations, including reducing costs and modernizing the store base. "Our primary objective is to improve our performance," said Christian Haub, president and CEO. "That will put us into position to participate in industry consolidation going forward."

Although consolidation has been eliminating some regional operators, other regionals see continued opportunities to grow. "Oklahoma is fragmented, so there's an opportunity for us to be a consolidator as Oklahoma follows the consolidation trend," said David B. Clark, president and chief executive officer of Homeland Stores, Oklahoma City. Last week Homeland signed a letter of intent to buy nine stores in eastern Oklahoma from Horner Foods, Tulsa, Okla. (See story, Page 4).

"We want to grow through market consolidation in the state where it makes sense," he said. Clark added that specializing in convenience of location and design is an important niche for a company like Homeland.

At Big V Supermarkets, Florida, N.Y., David Bronstein, chairman and interim CEO, said acquisitions, such as consolidating with other ShopRite members of Wakefern Food Corp., are "within our focus, as is acquiring other companies and bringing them into the fold."