British increase stake in Giant J. Sainsbury PLC now holds 19.9% of nonvoting shares

Takeover looks more likely

It already owns half of the voting stock in Landover company

August 07, 1996|By Sean Somerville | Sean Somerville,SUN STAFF

A British grocery chain that owns half of Giant Food Inc.'s voting stock boosted its stake in the Landover-based company by buying about 2 million nonvoting shares from the estate of the late chairman, Israel Cohen, company officials said yesterday.

J. Sainsbury PLC paid $62 million, or $31 per share, in a purchase that increased its nonvoting stake from 16.7 percent to 19.9 percent. In the first acknowledgment of a possible takeover, the deal calls for an additional payment from Sainsbury to the estate if it takes over Giant Food within the next four years.

Kurt Funderburg, an analyst with Ferris Baker Watts in Baltimore, said the transaction was not surprising. He said it was in line with the widely held belief in "a slow glide path" to a Sainsbury takeover of Giant.

"If I had to bet, five years from now, I would say the odds are that Sainsbury would own Giant," he said.

The purchase leaves the estate with 800,000 nonvoting shares and 125,000 voting shares, half of the 250,000 total. Sainsbury owns the other 125,000 voting shares.

Neither Giant nor Sainsbury commented on the likelihood of a takeover. David Rutstein, senior vice president and general counsel for Giant, called the deal a private transaction between the estate and Sainsbury to raise cash.

"With this transaction, we'll be able to pay the estate's tax bill," he said.

In a statement, David Sainsbury, the chairman of Sainsbury, said, "We are very happy with our investment in Giant and our developing relations with the company. We were glad of the opportunity to help the executors of Israel Cohen's estate with their tax planning."

Giant's stock closed down 25 cents, at $33.875. Sainsbury shares closed unchanged.

London-based Sainsbury, the No. 1 grocer in Britain, bought 16 percent of Giant's nonvoting shares and half the voting shares in October 1994. Sainsbury controls four of nine seats on Giant's board.

The will drafted by Israel "Izzy" Cohen, who died at 83 last November, would set many of the terms of any takeover.

Cohen placed his 125,000 voting shares in a company called 1224 Corp., which is controlled by his sister and four senior officers of the company.

The number was chosen because it looks like "Izzy" if you tamper a bit with the 4.

In his will, Cohen said 1224 Corp. couldn't sell the voting shares unless the purchaser made the same per-share offer to the holders of Giant's 59 million nonvoting shares, which are traded on the American Stock Exchange.

"Izzy always said that public shareholders should be treated the same as his family," Rutstein said. "He carried that forward in his will."

Funderburg said the will makes buying Giant a much more expensive proposition for Sainsbury. "It prevents them from doing it on the cheap," he said.

Sainsbury's purchase of 2 million nonvoting shares -- a little more than 3 percent of the total -- does not mean a takeover is certain anytime soon, Funderburg said.

"They're not in any hurry," he said. "They have good relationships. Giant has access to Sainsbury's capital and management. At the same time, Sainsbury has a foothold on the strongest chain in the middle Atlantic" region.

But the agreement contemplates the possibility of a takeover. Under the agreement, if Sainsbury buys the voting stock from 1224 Corp. within the next four years, it must pay the estate the difference between $31 per share and the amount it offers for the outstanding nonvoting shares.

"It's the first time you've seen one or the other come out and say that this is something that could be on the horizon," Funderburg said. "It's no use for them to keep denying it anymore. The only reason for Sainsbury to buy more shares is to gain complete control."

The $31 purchase price, below the trading price, is typical of transactions that involve such a large number of shares, analysts said.

Jeff Metzger, publisher of Columbia-based Food World, said that, while some might see the purchase as greasing the skids for a deal, nothing is imminent.

"Nothing happens to Giant until somebody gets control of the voting stock," he said. "Realistically, it doesn't change the status of the company. It doesn't change the way the company is managed on a day-to-day basis."

Rutstein downplayed the importance of the deal, saying the stock had not reacted and that analysts saw it as a nonevent. "I think it's a routine matter," he said.

"The estate was interested in selling 2 million shares. And Sainsbury was interested in buying 2 million shares."

A takeover of Giant Food by Sainsbury would help the two companies in part by consolidating the administrative offices of Giant stores and Shaw's supermarkets, a dominant New England chain owned by Sainsbury, Funderburg said.

Giant, the nation's 12th largest food chain, is fortifying its Baltimore-Washington base and planning a northbound expansion with stores in New Jersey, Pennsylvania and Delaware. Shaw's supermarkets are dominant in New England.

Funderburg said a total merger of the two stores wouldn't make sense because both stores have their own identities and Giant has a slightly more upscale reputation.

But, the dominant stores in the two territories "are moving toward each other," Funderburg said. A takeover "is something you can see happening when Sainsbury feels like it's a good idea and when Giant feels like selling its shares."

Pub Date: 8/07/96

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