Is Someone Out To Devour Smith's?by
Just as the drugstores are consolidating, grocery chains are teaming up, too. Competition in the industry is intense, notes an analyst, and profit margins slim. A perfect setup for mergers and acquisitions?
"You bet," says a strategist at a New York investment bank who has been buying into Smith's Food & Drug Centers (SFD), trading on the Big Board at 26 a share, near its high of 27 3/4--after drooping to 18 in August. This pro is convinced that Smith's, a Salt Lake City chain with 145 outlets in eight Western states, is a takeover target. He believes American Stores (ASC), also based in Salt Lake City, which operates 1,600 food-and-drug stores in 27 states, has its eye on Smith's.
"The strategic and geographic fit is there for an American Stores-Smith's Food link," says the investment strategist. He thinks Smith's large food-and-drug centers appeal to American Stores, which owns such food operations as Lucky Stores in California and Jewel-Osco in New Mexico. Its drug outlets include Osco Drug in Illinois and Sav-On Drugs in California.
"Rather than open up new units, American Stores is thinking of acquiring established chains" that offer both food and drug products, says one analyst, whose securities firm does business with American Stores. In a buyout, this analyst thinks Smith's Food is worth 40. American Stores declined comment. Smith's didn't return calls.