Obvious deal for Giant was never made By all indications, Sainsbury was to be grocer's next owner

Sale to Ahold is major shift


May 20, 1998|By Shanon D. Murray | Shanon D. Murray,SUN STAFF Bloomberg News contributed to this article.

There was the assumption that if a suitor ever came calling on Giant Food Inc., the region's dominant supermarket chain built by Israel "Izzy" Cohen, it would be Britain's second largest grocer, J. Sainsbury PLC.

Speculation began in 1994, when Sainsbury bought half of Giant's voting stock -- a move that ended 60 years of total family control -- and 9.5 million shares of its nonvoting common shares. It spurted again when the British grocer, which holds four of Giant's nine board seats, increased its stake in the nonvoting shares to 20 percent.

In December, the Landover chain named a top Sainsbury executive who sat on its board as chief operating officer.

It appeared to be an obvious acquisition waiting to happen.

Then came yesterday's announcement that Giant would indeed be sold to a European company -- but not Sainsbury. Instead, Sainsbury agreed to sell its stake to Royal Ahold NV of the Netherlands for $600 million, handing the British company a $160 million profit.

"Taking control of Giant was a desirable but not essential element of our U.S. growth strategy," Dino Adriano, Sainsbury chief executive, said yesterday. "Today's deal at this price is in our shareholders' best interests."

The decision to sell, analysts said, was a major shift; Sainsbury has always made its intention toward Giant clear, and had rebuffed previous offers by Ahold for its minority interest.

"Sainsbury has always said their U.S. strategy is based on a series of acquisitions, including Giant," said Andrew Fowler, a London analyst with Morgan Stanley Dean Witter.

"I guess Ahold got bored with approaching Sainsbury and went straight to 1224 Corp.," the holding company set up by Cohen's will to hold his half of the voting stock, he said. "Doing that was equivalent to holding a gun to Sainsbury's head and asking them to walk away or get shot."

Sainsbury didn't have much chance to compete with Ahold's offer. Since it first acquired a stake in Giant, Sainsbury has seen its position in Britain slip from No. 1 to No. 2 as competition there has intensified.

And it, too, is undergoing internal changes. Earlier this month, the company's chairman, David Sainsbury, announced he would retire in September, marking the first time the company would not be headed by a family member in its 129-year history.

"Sainsbury needs to devote capital and management attention to its operation in Britain," said Kurt Funderburg, an analyst with Ferris Baker Watts in Baltimore. "The competition has picked up there, and Sainsbury's earnings have tumbled. The company didn't have the time or money to consider acquiring the remainder of Giant."

The company also said earlier this month that it would focus on improving its other U.S. holding, East Bridgewater, Mass.-based Shaw's Supermarkets.

When the British grocer acquired Shaw's in the 1980s, the chain had 87 stores. Today, it has roughly 115 in Massachusetts, Connecticut, Maine, New Hampshire and Rhode Island.

But Shaw's, like Giant, has been hit with stiff competition and a strike that has sent its earnings tumbling.

Some British analysts are now calling Sainsbury's attempt to penetrate the U.S. market a failure.

"Maybe this is the first of two steps for them, and they will sell Shaw's next," said Frank Davidson, a London analyst for HSBC Securities. "U.K. shareholders are hoping that the sale of Sainsbury's stake in Giant will mark the end of its ambitions for the New World," he said.

Pub Date: 5/20/98

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