SAFEWAY SEARCHING FOR GOOD VALUE IN ACQUISITIONS

ELLIOT ZWIEBACH

Safeway will continue to "kick tires" in search of additional acquisitions, but it doesn't intend to overpay, Steve Burd, chairman, president and chief executive officer of the Pleasanton, Calif.-based chain, said here.

Speaking at the annual Food and Drug Retail Conference sponsored by Credit Suisse First Boston, Burd said, "People ask me about the climate for acquisitions, and I tell them that over the last two years, there was probably more activity among companies looking at potential assets than in the previous seven years, and that's equally true today.

"But despite the tire-kicking we've done, we've said 'no' to most companies we looked at because the value they were seeking -- the difference between the ask and the bid -- was too broad. And we believe there were other bidders [for some properties], but most properties didn't change hands.

"The peak time for regional operators to sell their assets was December 1998 because EBITDA [earnings before interest, taxes, depreciation and amortization] margins were at an all-time high, and earnings multiples were near 8.5. But today there are literally dozens of assets that are no longer sellable as a single unit, and if they are sold, they must be fragmented.

"The only thing that can change that is if regional independents become more realistic regarding their valuations as they seek to sell their operations as a single unit."

Regarding the competitive situation, Burd said it is no different than it's been during the nine years he's been with Safeway. "We operate in 10 geographies, and there are always competitive flare-ups in one or two, then an easing off in those and a flare-up in others, and we continue to see that pattern in terms of pricing and promotions.

"A couple of markets have warmed up a little in the last few months while a couple of others have cooled off. But as we do our price checks, we find it's really business as usual."

Safeway continued to expect top-line growth and earnings growth of 13% to 15%, excluding acquisitions, "but the growth could be greater if we do an acquisition," Burd said. "But it's hard to add an acquisition to our planning because we're not going to overpay, and we prefer those deals to be opportunistic. For us, we typically expect acquisitions to be accretive in the first 12 months."