News > Deals
Food and drug chains unite
August 3, 1998: 12:56 p.m. ET

Albertson's to merge with American Stores in $11.7B stock and debt deal
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NEW YORK (CNNfn) - Albertson's Inc. and American Stores Co. said Monday they are merging in a deal valued at $11.7 billion, forming the nation's largest retail food and drug chain, with 2,470 stores in 37 states.
     American Stores, based in Salt Lake City, operates the Acme Markets, Jewel Food Stores and Osco Drug chains of food and drug stores. Boise, Idaho-based Albertson's operates 916 retail stores in 23 states in the West, Midwest and South.
     Under terms of the deal, which both companies' boards approved, American Stores shareholders will receive 0.63 of a share of Albertson's stock for each American share. Albertson's also will assume $3.4 billion of American Stores' debt.
     After the merger is completed, expected in early 1999, American Stores shareholders will own 41.3 percent of Albertson's.
     News of the deal sent Albertson's (ABS) shares down 2-7/16 to 45-9/16 in midday trading. American Stores (ASC) gained 3-5/8 to 26-13/16.
     "From a strategic standpoint, this transaction will strengthen our presence in many of our existing markets across the country -- particularly in Northern and Southern California and the Southwest -- and enables us to enter important urban markets like Chicago and Philadelphia for the first time," said Gary Michael, Albertson's chairman and chief executive officer. "Additionally, we will enter the stand-alone drugstore business for the first time."
     Albertson's said it expects the deal to add to its 1999 earnings. The company also said it intends to cut costs by $300 million through a reduction in overhead, advertising expenditures and overlapping markets.
     "It helps Albertson's grow their earnings quicker than they would have been able to do otherwise," said Robert Izmirlian, an analyst at S&P Equity Group. "They also break into the drug field without having to develop a separate unit."
     The Albertson's-American Stores merger continues a consolidation trend in the supermarket and drugstore chain industry, as low profit margins force companies to combine.
     "This is such a low-margin business that companies need overhead efficiency," Izmirlian said. "By buying another company your scale is greater and you can lower overhead, especially in the administrative area."
     The combined company will be called Albertson's Inc. Albertson's said it will keep its Boise headquarters and that it intends to retain both companies' current store names.
     The company said it expects to take "significant charges," though it would not offer a figure.
     Michael will retain his titles at the combined company. Victor Lund, American Stores' chairman and CEO, will serve as vice chairman.
     Separately, Albertson's reported its same-store sales climbed 0.2 percent for the five-week period ending July 30. The company also said comparable-store sales increased 0.4 percent, while total sales increased 7.6 percent. Back to top


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