Sale of Smith’s Food Also Will Benefit Yucaipa

An Oregon retail giant will acquire the Utah-based Smith’s Food & Drug Centers in a merger that is expected to boost the fortunes of Yucaipa Cos., the Los Angeles investment firm that controls Ralphs Grocery Co.

Yucaipa owns a minority stake in Smith’s, and the merger was engineered by Ron Burkle, who is both head of the investment firm and chief executive of Smith’s. Under the deal announced Monday, the Portland-based Fred Meyer Inc. will buy Smith’s for $720 million in stock.

Yucaipa, which owns about 24% of Smith’s, will receive a 9% stake in the combined company. That stake in the larger combined firm will also give Yucaipa additional buying power, enabling it to negotiate lower prices from suppliers, said Yucaipa spokesman Darius Anderson.

Yucaipa already negotiates for 342 Southland stores operating as Ralphs and Food 4 Less, as well as 63 supermarkets in Northern California and additional chains in Chicago and Kansas.

The investment firm’s buying clout grew when it acquired its stake in Smith’s in May 1996. The Salt Lake City-based Smith’s operates 151 stores in seven Western states. Fred Meyer, an operator of jewelry and specialty stores, has 100 supermarkets.

Fred Meyer operates in 17 states but has no supermarkets in California. Smith’s decided to withdraw from the Southland in January 1996, selling or closing all 34 of its Southern California stores after a failed five-year effort in the region.

Fred Meyer has agreed to assume $1.3 billion in Smith’s debt as part of the deal. Yucaipa and other shareholders will receive 1.05 shares of Fred Meyer stock for each Smith’s share.

Smith’s stock climbed $3.75 to close at $43.75, and Fred Meyer rose 75 cents to $42.625, both on the New York Stock Exchange.

The deal is expected to be completed by late summer, pending shareholder clearance and regulatory approval. Yucaipa’s Burkle is to become chairman of the combined company.