Smith’s Reaches Pact to Buy Smitty’s Supermarkets

Smith’s Food & Drug Centers announced Monday that it has reached agreement to acquire Smitty’s Supermarkets, which has 28 stores in Phoenix and Tucson, for stock and debt totaling about $239.5 million.

The grocery and drugstore company had said Jan. 15 that it was calling off merger talks with the Arizona supermarket chain, controlled by Yucaipa Cos., a Los Angeles-based private investment company.

The company did not say what triggered a resumption of the talks.

Smith’s said the agreement calls for the swap of 3.04 million shares of its Class B common stock for all of Smitty’s outstanding common stock. Smith’s will also assume or refinance about $148 million of Smitty’s debt.

Smith’s is also offering to buy back from investors 50% of its Class A and Class B common stock for $36 a share.

The company said it has commitment letters from several financial institutions and is confident the financing will be available to close the Smitty’s deal and buy back the stock this spring. No executives were immediately available for comment.

The acquisition of Smitty’s would move Smith’s from fifth place in the Arizona grocery market to second place, said Gary Giblen, a Smith Barney analyst.

The combined company would have a 20% market share, just behind Kroger-owned Fry’s with 22% to 24%. Smith’s and Smitty’s together have 56 stores in Arizona.

Smith’s also announced Monday that Yucaipa’s managing partner, Ronald W. Burkle, will be appointed Smith’s chief executive when the deal is completed.

The Salt Lake City-based company, which had 154 stores in eight Western states at the end of 1995, also announced a year-end loss of $40.5 million, contrasted with earnings of $48.8 million in 1994.

Most of the loss was due to an $84-million restructuring charge the company took in the final quarter related to the sale and closure of its Southern California operation.

Without that charge, Smith’s would have had earnings of $43.5 million, or $1.72 a share. The company’s sales for the year rose 3% to $3.08 billion.

Smith’s announced it was leaving the Southern California market earlier this month.