Giant chairman's death stokes takeover rumors Britain's No. 1 grocer, Sainsbury, already holds a large stake

Only the queen is richer

Maryland-based chain sees its stock rise amid increased anticipation

November 25, 1995|By Alec Matthew Klein and Bill Glauber | Alec Matthew Klein and Bill Glauber,SUN STAFF

Speculation about a British takeover of the region's dominant supermarket chain intensified yesterday less than 48 hours after the death of Giant Food Inc. Chairman and Chief Executive Officer Israel Cohen.

Giant Class A shares rose yesterday to their highest level in more than six years, closing at $34.25, up $2.75, in heavy trading.

But J. Sainsbury PLC, the No. 1 grocery chain in Great Britain with a minority ownership stake in Giant, yesterday kept a tight lid on its plans.

"We're very limited in what we can say at the moment," said Sainsbury spokesman David Cox from London.

In a statement, Sainsbury Chairman and Chief Executive David J. Sainsbury said, "We are greatly saddened to learn of the death of Israel Cohen. He was one of the great American retailers of this century. He, his management team and his skilled and enthusiastic work force, built Giant Foods into one of the most respected food retail companies in the world. We have every confidence in the current management team and the future success of the company."

However, analysts said, with the death of Mr. Cohen, 83, the driving force behind Giant's expansion into a 164-store chain, Sainsbury may strike.

"I think Wall Street is looking at this company soon becoming a division of Sainsbury," said H. B. Tom Thomson of Wheat First Butcher Singer in Richmond, Va.

Under the terms of his will, according to Giant, Mr. Cohen left his voting stock, which selects four of the seven-member board of directors, to his sister and four company officers. But Sainsbury owns the other half of the Landover-based chain's voting stock, which entitles the London-based company to select three of the board members. In addition, Sainsbury owns 16 percent of Giant, which it acquired in October 1994 for $325 million.

To acquire the rest of Giant, analysts said, Sainsbury might end up paying as much as $400 million for both voting and nonvoting stock. As a result, Giant stock, which has been rising in the past several months in anticipation of a deal, is expected to continue its ascent.

Meanwhile, even more attention is expected to be directed at Sainsbury, which has maintained a low profile as an investor in Giant.

For Sainsbury, the sudden turn of events in the Baltimore-Washington area has a familiar ring. In 1983, Sainsbury, forced by increased competition in Britain and a saturated market, turned to America for expansion and bought a percent stake in Shaw's Supermarkets in New England. By 1987, the British company owned all of Shaw's -- more than 80 stores in Massachusetts, New Hampshire, Maine and Rhode Island.

Today, Sainsbury is Britain's dominant grocer with an 11.6 percent market share and more than 300 stores operating under the names Sainsbury's and Savacentre. The stores sell food, wines, cosmetics and other goods, most under the chain's own brands, including "Gio" sodas and "First Menu" baby foods. Many of the stores also offer a wide variety of foods from across the globe, such as spices and teas, and some stores sell clothing and compact discs and operate gas stations and coffee shops. Sainsbury also operates Homebase House and Garden Centres, a home improvement chain.

J. Sainsbury isn't just Britain's leading supermarket chain, it's a grocery empire headed by one of the country's richest individuals.

According to BusinessAge magazine, only Queen Elizabeth is wealthier among Britons than is David Sainsbury, the supermarket chairman with a fortune the magazine lists at $2.48 billion.

The Sainsbury method of success is to provide clean stores with a friendly, helpful staff and an array of products that, at first glance, would astonish most American shoppers. But the secret to the chain's profitability is that Sainsbury private-label products account for two-thirds of grocery store sales.

At Sainsbury's, fresh game sits side by side with chicken and duck, and fruits from Israel vie for a customer's eye with delectable items from Italy and South America.

After going public in 1973, and growing rapidly in the 1980s, Sainsbury's has fought to protect its British turf from its main rivals, Tesco and Safeway. Earlier this month, it disappointed market analysts by announcing lower than expected profits and sales growth.

In a recent business editorial entitled "The wheels on Sainsbury's trolley look jammed," the Independent of London said, "Sainsbury's marketing efforts look pretty tame by comparison" with its rivals.

The Guardian chimed in that Mr. Sainsbury announced the start of a new supermarket price war "with the lack of conviction which has begun to raise questions not only about the supermarket chain's ability to claw back its lost market position, but also about Mr. Sainsbury's ability to lead it in that quest."

Why all the piling on? The firm still derives more than 80 percent of its profit from its British supermarkets.

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