Wild Oats could be takeover target
By Alexander Coolidge
Post staff reporter
The former chairman of Fred Meyer supermarkets, who helped sell that chain to Kroger Co., has made two major deals this week that observers say could spur another round of industry consolidation.
Ronald Burkle, chairman of Los Angeles-based Yucaipa Cos., which specializes in acquiring, improving and selling supermarket chains, disclosed Wednesday he has purchased a 9.2 percent stake in natural foods purveyor and takeover target Wild Oats for $19.8 million.
On Thursday, Burkle said he agreed to invest $150 million into the ailing Pathmark Stores chain in the Northeast in exchange for a 40 percent stake in the struggling grocer. He also signed a five-year management deal.
Burkle, who served on Cincinnati-based Kroger's board from 1999-2001, could have an eye on selling the chains, analysts say.
Mitch Corwin, an analyst with Morningstar in Chicago, predicted Burkle would try to turn around Pathmark in the next two or three years then sell it off. He also speculated Burkle would use his stake in Wild Oats to push improvements at that chain and still might seek a controlling stake.
"He dresses supermarkets up and sells them -- that's his M.O.," he said.
Kroger, Albertson's or Safeway might be logical acquirers down the road of either chain, he said.
Burkle served as chairman of Fred Meyer from 1997 until the $13.5 billion deal in 1999 that made Krogerthe nation's largest supermarket operation. He also served as chairman of Ralphs/Food 4 Less when Fred Meyer acquired it in 1998. He also was chief executive of Smith's Food and Drug in the mid-'90s before Fred Meyer acquired it in 1997.
Frank Quintero, a principal at Yucaipa, declined to elaborate on the firm's plans for Pathmark or Wild Oats. Officials at Cincinnati-based Kroger declined to comment on whether they might seek to acquire either chain.
Corwin said that, if Wild Oats became available for sale, Kroger might be interested in the Boulder, Colo.-based chain. He doubted Pathmark would entice Kroger. The company has concentrated on adding stores in its major markets rather than in new territory, he said.
Nearly half of Wild Oats stores are in Kroger strongholds of California, Colorado and Texas. Carteret, N.J.-based Pathmark Stores operates most of its 142 supermarkets in New York, New Jersey, Delaware and Pennsylvania, which are not major markets for Kroger.
Struggling Wild Oats has been seen as an attractive acquisition in the consolidating supermarket industry because the natural foods sector is growing, and it's an industry segment that commands higher profit margins.
"Wild Oats has industry trends in its favor," Corwin said.
Burkle scooped up 2.6 million shares of the grocer since February on the open market because he considered them undervalued, he said in a government filing. Wild Oats spokeswoman Sonja Tuitele said Burkle's investment was an endorsement in the company's potential.
The No. 3 natural and organic foods player behind Whole Foods and Trader Joe's has seen its stock punished for disappointing results last year.
Wild Oats saw sales climb 8.1 percent in 2004 to nearly $1.1 billion, but had a net loss of $7.1 million. Officials blamed the California grocery strike of late 2003 and early 2004 for puffing up sales during the labor dispute only to let them drop after it was resolved last spring.
In December, the company tapped Robert Miller, Kroger's former chief operating officer, as non-executive chairman. Miller also served as chief executive at Fred Meyer before Kroger bought the chain.
• Wild Oats has 108 stores in 24 states and Canada -- including two stores in Greater Cincinnati.
• After Burkle's announcment, shares of Wild Oats' stock jumped $1.34, 14 percent, in heavy trading on Thursday to close at $10.61.
Publication Date: 03-25-2005
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