American Stores awaits founder Skaggs' next move

Drug Store News, July 8, 1996 by James Frederick

SALT LAKE CITY -- American Stores has vowed to remain independent and to stay focused on its massive integration effort in the face of a possible shakeup brought on by its founder and largest shareholder, Lennie "Sam" Skaggs.

Skaggs, 72, has told the Securities and Exchange Commission that he and his wife, Aline, may sell some or all of their 18.3 percent stake in the company, now worth some $1 billion. In addition, Skaggs indicated in a Schedule 13D filing that he is considering a number of other strategies to enhance shareholder value in conjunction with the possible sale of his holdings. Among them: the acquisition of additional shares in what could signal an attempt to gain majority control of the company; a merger or other business combination; a liquidation of company holdings; a change of management; or a change in capitalization or dividend policy.

One insider at American Stores dismissed much of the SEC document as "boilerplate ... [intended to] give [Skaggs] the most latitude" in his attempts to bolster shareholder equity. Nevertheless, American Stores' board and current management team is taking the filing seriously; on June 25, the board announced it had amended the company's shareholder rights plan to more easily trigger poison-pill antitakeover provisions in the event of a takeover attempt. Under the new rules, if any person or group acquires more than 10 percent of American's stock, shareholders other than Skaggs or his wife have the right to buy $125 worth of American stock for $62.50.

What's more, the board has issued a statement reaffirming its support of current management and the company's current direction. While company managers would not comment directly on the Skaggs filing, Vic Lund, chairman and chief executive, noted in a statement that American's board "recently unanimously confirmed that the best interests of the company and its stockholders would be served by the company remaining an independent entity and continuing its current strategy for increasing shareholder value.

"The company has in place a strong management team to continue pursuit of our strategic plan for growth," Lund added.

Skaggs, who has avoided contact with the press through most of his career, could not be reached for comment on his real intentions. But his SEC filing has fueled speculation in the general press that the former chairman and chief executive is at odds with American's current leaders--and with their effort to evolve the company from a holding company composed of distinct food and drug retail companies into a centralized and fully integrated national retail operation.

If so, that would put Skaggs at odds with the current thinking among Wall Street investment analysts, who have strongly supported the Delta centralization project championed by Lund. So too have investors, who have driven the price of American's stock up significantly over the past several months.

"It would in our view be hard to improve upon [American Stores'] existing strategy," noted retail analyst Gary Giblen in response to the Skaggs filing. "We see limited added value in obvious restructuring scenarios involving partial or total breakup or spinoffs."

Giblen added that 'curtailment of Mr. Skaggs' ownership and influence would be welcomed by the Street."

Skaggs retired in July 1995 as American Stores chairman, citing back problems, while retaining a seat on the board of directors. If his intention is to launch a proxy fight for control of American or to alter its current management or direction, it remains to be seen whether he can muster the necessary votes to accomplish that. Although he and the family trusts he represents hold a powerful ownership] stake in American, Skaggs would need to gain the support of stockholders representing another 32 percent of company company ownership to gain majority control.

Trying to make sense of it all

American Stores insiders and retail analysts who follow the company, meanwhile, were mystified by the 72-year-old founder's action. "The ball is his court," noted one American executive. "It's just not clear what this all means."

"I'm sort of bewildered about what's happening here," said analyst Jonathan Ziegler of Salomon Brothers. "It sounds to me that there is some hostile action at this company." Ziegler added that he remains supportive of Lund and his management team's efforts to integrate American's far-flung operations.