Seeking a strategy that skirts the widening influence of Wal-Mart Stores in the grocery business, Albertsons said yesterday that it would spend $2.47 billion to buy the New England-based Shaw's chain of supermarkets from its British parent, J Sainsbury.
The deal, a buyout of the holding company that owns Shaw's using a combination of cash, stock and debt, will give Albertsons a presence for the first time in densely populated New England. It will add 202 stores, bringing its total to about 2,500 stores, and sales will increase to about $42 billion. Sales at Shaw's, which is ranked first or second in revenue in most of its markets, totaled $4.6 billion last year.
Albertsons executives would not give details about the exact terms, and would not say whether any layoffs were planned. Shaw's president and chief executive, Paul T. Gannon, called the deal "a win-win for both companies" and said it would "allow Shaw's to retain its leadership position in the New England marketplace."
Wall Street was not impressed by the move, pushing Albertsons share price down 78 cents, or 3.4 percent, to $21.88. One analyst, Andrew P. Wolf of BB&T Capital Markets in Richmond, Va., said the reaction showed concern that the price paid was too high compared with earnings at Shaw's and, perhaps that the effort by Albertsons to insulate itself against Wal-Mart may not prove effective in the long run.
Like most grocery retailers, Albertsons has been struggling in an industry newly dominated by Wal-Mart, the discounter based in Bentonville, Ark., that has aggressively opened supercenters - supermarkets in combination with general merchandise stores - over the last five years. The impact of Wal-Mart's buying power, combined with the low-price image it carries with consumers, has eroded market share and earnings for many once-lofty supermarket chains.
The purchase of Shaw's, which has stores peppered throughout cities like Boston and Providence, is likely to make Albertsons a more important presence in urban areas, where Wal-Mart has either had difficulty finding enough acreage to build stores or has chosen not to go because of strong labor unions or other resistance to its low-budget business style.
Still, that may only be temporarily true, Mr. Wolf said. "There are not a lot of Wal-Mart supercenters in New England," he said. "But the point is, what does the future hold? In all likelihood, Wal-Mart will continue to expand across the country."
The Shaw's purchase may also set off acquisitions by other players in the supermarket industry, where a flurry of consolidation in the early to mid-1990's has been followed by a largely quiet period. Albertsons, based in Boise, Idaho, will be only slightly smaller than another of its rivals, the Kroger Company. Both have been challenged by Wal-Mart, not only in pricing but also on labor issues.
A recent strike by California supermarket workers concerned about pay and benefit losses because of Wal-Mart's presence slashed $90 million from Albertsons fourth-quarter earnings, the company announced this month. Albertsons sales fell by $700 million. Kroger lost $156.4 million and finished the quarter with a loss of 45 cents per share, not all of it as a result of the strike.
"This puts Albertsons one acquisition away from eclipsing Kroger as the No. 1 food and pharmacy retailer in the United States," said Burt Flickinger III, a retail consultant. He called the Shaw's purchase "a brilliant strategic masterstroke to get into one of the fastest-growing regions of the country," and predicted that other chains, including Pathmark, would become buyout targets before long.
Other analysts were pessimistic about the deal, which Albertsons executives said would improve earnings beginning this year. "We do not believe Albertsons should have been looking to get bigger," Robert T. Campagnino, a retail analyst for Prudential Securities, said in a note to investors.
Mark Husson of Merrill Lynch issued his own note complaining that the company had failed to give helpful details on the financing of the acquisition, which he said could affect earnings. He predicted the deal could add 5 cents to 16 cents a share to earnings, depending on the financing terms. Meanwhile, a conference call held by Sainsbury executives to announce the sale, he wrote in the note, "basically said that sales and earnings were about as good as it gets and it was time to sell while they could."
The deal calls for Albertsons to assume about $368 million in capital leases, which is included in the purchase price, Albertsons said in a statement. The acquisition is subject to government review and is expected to close, if approved, by summer.
Only about one-third of the Shaw's stores, some of which do business as Star Markets, are in cities, Mr. Wolf said. The rest are in suburban areas and in outlying suburbs, he added, where Wal-Mart has little trouble finding room to construct large stores and parking lots.
Mr. Flickinger pointed to Stratford, Conn., as a place where Shaw's and Wal-Mart coexist in the same shopping center, so close to each other that their stores have one wall in common. "Wal-Mart has been actively going head-to-head with Shaw's in Maine and New Hampshire," he said. But in Stratford, "Shaw's felt very comfortable opening its new prototype store next door to a Wal-Mart." Shaw's has also experimented with arresting store designs, particularly in the Prudential Center in downtown Boston, he added, where a store of soaring glass and steel has drawn much attention.New York Times/Constance Hays
