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Kroger Rejects KKR’s Buyout Proposals

October 7, 1988 GMT

CINCINNATI (AP) _ The Kroger Co. on Friday rejected two buyout proposals by Kohlberg Kravis Roberts & Co. and reaffirmed its intent to go ahead with a $4.6 billion corporate restructuring plan.

The realignment prompted the firing of 300 headquarters employees announced Thursday.

The supermarket giant said its board of directors unanimously rejected both of the latest unsolicited proposals made by the New York City-based Kohlberg Kravis in an Oct. 4 letter to Kroger.

In New York, spokeswoman Ruth Pachman said Kohlberg Kravis had no comment on Kroger’s response.

Kohlberg’s more lucrative buyout offer of $5.03 billion, or $64-per-share, represented a sweetened offer from a $58.50-per-share pitch KKR made after entering the bidding last month.

Dart Group Inc., of Landover, Md., started the bidding Sept. 19 with a $4.32 billion, $55-per-share offer. Dart has not made another buyout offer.

Kroger chairman Lyle Everingham said the board again decided that Kroger’s restructuring is preferable to selling the company because it gives shareholders immediate cash dividends along with equity in a continuing company, although it would be smaller and more highly leveraged. As envisioned, the restructuring would leave Kroger independent and publicly owned.

″Our program will permit shareholders to realize substantial immediate values on their common stock, while retaining the controlling equity interest in a company with a bright future,″ Everingham said.

Kroger shareholders have filed at least four lawsuits challenging management’s decision not to sell Kroger.

Kohlberg Kravis’ latest proposals included the $5.03 billion buyout offer and a separate proposal to buy Kroger even after it completes the restructuring. Kroger has said its restructuring would require the layoffs announced Thursday and selling some real estate, supermarkets and convenience stores, as well as distribution and food-processing centers.

″Kroger’s board concluded that both these latest KKR proposals were inadequate and not in the best interests of the company, its shareholders and other constituents,″ Kroger said in a statement. ″In making its determination, Kroger’s board considered various factors, including the opinion of the company’s financial adviser, Goldman Sachs & Co., that both KKR proposals are inadequate.″

The Kroger board said it also was concerned about possible regulatory antitrust problems and whether Kohlberg Kravis could obtain the necessary financing. Kohlberg Kravis owns other food retailing companies, including Stop & Shop Cos., Safeway Stores and Beatrice Cos.

Kroger said Thursday’s mass firing, which gives employees up to nine months’ salary and other benefits for up to a year, will save the company at least $13 million annually. The firing does not affect supermarket employees.

Some analysts say Kroger’s staff reductions which leave 500 employees at it headquarters, still isn’t likely to discourage takeover-minded outsiders.

″This is throwing bleeding hunks of meat over the bow of the boat, hoping the shark will slow down,″ said Ryan Mathews, senior associate editor of Grocery Marketing, a trade publication. ″The shark wants a whole dinner, not just an appetizer.″