Merger mania struck again in Utah Sunday as Smith's Food & Drug Centers Inc. agreed to be acquired by Fred Meyer Inc. in a stock swap totaling $1.95 billion in Fred Meyer shares and Smith's debt.
But Utah customers of both retail chains will be hard pressed to detect any changes, executives of the two companies said Sunday night in a telephone interview with the Deseret News."Customers will see very little difference. They will see the same stores with the same names and the same employees serving them," said Ronald W. Burkle, chief executive officer of Smith's.
All of the Smith's and Fred Meyer stores will continue operating under their current names and formats, and both companies will keep their operations separate and intact, including Smith's headquarters in Salt Lake City, said Robert G. Miller, chairman and chief executive officer of Fred Meyer, which is based in Portland, Ore.
"This is really a merger of equals," Miller said. Smith's posted revenues of $2.89 billion last year. Fred Meyer reported sales of $3.72 billion.
The combination of the two companies will create a chain with 265 stores in 11 Western states.
Mike Reed, spokesman for the Boise-based Albertsons chain, which also operates in Utah, said he wasn't surprised by the announcement, adding that Albertsons is also in a merger mood.
"Consolidation in the industry is occurring with more frequency than in the past, so this is not particularly surprising," Reed said. "We are looking for potential acquisitions more aggressively than in the past."
Miller said the main purpose of the deal was to save costs. "We estimate we'll save $65 million in fiscal 1997" in administration, distribution, manufacturing and information systems costs, he said.
Smith's spokeswoman Shelley Thomas said some of that cost savings will eventually be passed on to customers in lower grocery prices.
"Customers can only benefit from the $15 billion buying power that the Best Practices group will create," she said. "It's inevitable that customers will be helped by this."
Best Practices is a cooperative purchasing program that will be available to both retailers under the new holding company.
For now, both stores will retain their individual private-label programs that sell products under the stores' names, Thomas said.
Smith's carries 2,200 items under its own label, and these brands make up 20 percent of its business. Fred Meyer recently renamed its "President's Choice" line of private-label items to "First Choice."
"Right now, both companies will continue to have a strong presence in their private labels," she said. "We will continue to have the private label (brands at Smith's). We will continue to have the Fresh Values program."
Burkle and Miller estimate the combined revenues of the new company, which has not yet been named, will be in the range of $7 billion annually.
Otherwise, the merger seemed to be yet another in a move toward "bigger is better."
The deal involves $695 million worth of Fred Meyer stock and $1.25 billion of Smith's debt for a total of just less than $2 billion.
Under the agreement, holders of Smith's stock will receive 1.05 shares of Fred Meyer stock, meaning Smith's shareholders will receive $43.97 cents per share. Smith's stock closed at $40 Friday.
Fred Meyer shareholders will receive one share in the new company for each share they now hold. Fred Meyer's stock closed at $41.875 Friday.
Shares of Fred Meyer were down 50 cents to $41.375 in early trading Monday of 328,700 shares, almost triple the three-month daily average of 119,700.
Smith's shares were up $2.75 to $42.75 in trading of 366,700 shares, five times the daily average, in early trading.
Burkle said no employee layoffs or management changes are planned, but there could be some cutbacks where overlap occurs, such as in administration and accounting, but those should be made up by new jobs in the distribution end.
"We have to look at where redundancy might occur, but overall less than 1 percent will be affected out of a total of 45,000 employees," Burkle said.
Nor are there plans to close any Smith's or Fred Meyer stores, even when they compete in the same neighborhoods. "We will continue to run separate ads and retain separate identities," Miller said.
However, both executives agreed all stores will be reviewed continually for their financial performance and "we'll make any (closure) decisions based on that."
Burkle noted both stores have added square footage at a rate of 4 percent to 5 percent a year and plan to continue at that rate. "We'll look for opportunities (to add stores)," he said.
Miller termed the merged company a "merchandising powerhouse across the western United States."
Fred Meyer operates 222 stores in 17 states, including Utah. Most of the square footage is in 113 discount stores in six Western states, most of which have grocery departments. The rest are small specialty stores, including 104 jewelry stores located in shopping malls.
Fred Meyer reported sales last year of $3.72 billion and employs some 28,000 people.
Smith's operates 152 stores in Utah and six other Western states. Smith's reported 1996 sales of $2.89 billion and employs some 20,000.
The boards of directors of both companies have approved the deal. Burkle will be chairman of the new company, and Miller will be chairman and CEO. Jeff Smith, current chairman of Smith's, and Fred Smith, also a board member, will join the board of the new company. Neither will have executive or management roles.
The Smith family currently holds a 42 percent stake in Smith's. Burkle, a Los Angeles-based investor who has stakes in several supermarket chains, holds 23 percent.
Burkle is also managing general partner of The Yucaipa Cos., a private firm that invests in supermarkets and holds large stakes in Dominick's Finer Foods Inc., Chicago, and Ralph's Grocery Co. in Southern California.
He said following the merger, no single person will own more than 10 percent of the shares in the new holding company.
The deal is expected to be completed by September. It is structured as a tax-free exchange under tax laws.