Richfood being bought by SuperValu

$1.5 billion deal for operator of Metro stores

Grocery industry

June 10, 1999|By Shanon D. Murray | Shanon D. Murray,SUN STAFF

Richfood Holdings Inc., which operates the Metro grocery stores in the Baltimore area, said late yesterday that it will be acquired in a $1.5 billion deal by SuperValu Inc., a Minneapolis-based wholesale grocery supplier.

The combined company would operate 36 full-service distribution centers, 296 supermarkets and 151 limited-assortment stores.

SuperValu operates Cub Foods and Shop 'n Save stores, and does not have a significant presence in the mid-Atlantic area.

The boards of directors of both companies have approved the acquisition, but shareholders of Richmond, Va.-based Richfood, the largest wholesale food distributor in the region, must still approve the deal, the company said.

"Our industry is rapidly changing and we are proud to join forces with such a successful and respected organization," John E. Stokely, Richfood chief executive officer, said in a statement. "We strongly believe merging with SuperValu is in the best interests of our shareholders, customers and employees."

Competition in the Baltimore grocery arena has been heating up lately. With Giant Food the market leader, Safeway has responded by opening more city locations; Food Lion is moving up from the South; and Weis Markets, a small independent, has begun showing signs of growth. Richfood's Metro, with 18 supermarkets, holds the No. 3 market-share position in the Baltimore area. Richfood also owns the Shoppers Food Warehouse supermarkets in the Washington area and the Farm Fresh supermarkets in Virginia.

Metro began as a chain called Basics, owned by the Grand Union supermarkets, in the 1970s. The stores were warehouses, filled with nonperishables. Grand Union sold its mid-Atlantic Basics stores to an independent grocer.

The chain was sold in 1985 to Super Rite, a division of Rite Aid. In 1995, Rite Aid sold Basics to Richfood, which began converting all of the Basics stores into the new larger Metro format.

The acquisition would make SuperValu the 10th-largest supermarket retailer in the United States, increasing its annual retail food sales by 35 percent to $7 billion, the company said.

"Strategically, this is a very sound and logical combination," said Rita Simmer, a SuperValu spokeswoman. "Richfood will add almost 100 strong retail locations in the mid-Atlantic to our geographic reach. This meets our objective well."

SuperValu said it does not expect to close any Richfood operating facilities. "Because of our common strategies and positioning, we expect this operation to mesh quickly with our own," SuperValu Chairman and Chief Executive Officer Mike Wright said in a statement.

Richfood's shareholders will have the option to receive $18.50 per share in cash or SuperValu common stock. The transaction, which is expected to close in the third quarter of the current fiscal year, has a total value of $1.5 billion, including the assumption of Richfood's $642 million of debt.

Richfood shares rose $2 to $16.875 yesterday; SuperValu gained 50 cents to $24.8125. The deal was announced after the close of trading. Until yesterday, Richfood's shares had fallen about 30 percent in the last year. Much of the decline occurred April 23, when Richfood said Carlisle, Pa.-based Giant Food Stores Inc., a unit of Dutch-based grocer Royal Ahold NV, would not renew its contract. Ahold also owns Giant Food Inc. of Landover.

The Giant contract, which expires Dec. 31, accounted for $600 million of Richfood's dry-grocery product sales annually.

Bloomberg News contributed to this article.

Baltimore Sun Articles
Please note the green-lined linked article text has been applied commercially without any involvement from our newsroom editors, reporters or any other editorial staff.