DUBLIN, Calif. -- Lucky Stores Inc. disclosed Thursday that it plans to jettison its Gemco department store division in an apparent attempt to fend off a takeover by New York investor Asher Edelman.
John M. Lillie, Lucky's chairman and chief executive officer, said the 80 Gemco stores in Arizona, California and Nevada would be closed by the end of the year and the sites would be sold to Target Stores, a division of Dayton Hudson Corp. for $374 million.
He said there would be a quick disposal of the inventories and the proceeds from the Gemco transactions would exceed $700 million with net proceeds of about $450 million.
Edelman, who offered to acquire Lucky for $35 a share, or $1.8 billion, disclosed the Gemco deal on Wednesday and said he opposed it. He said he sent a letter to Lucky's board expressing dismay it would sell Gemco in a way that would not yield maximum value to shareholders.
'Frankly, we do not understand why (Lucky's) directors are considering undertaking these transactions on a taxable basis when there are methods available to avoid taxes,' Edelman said in the letter.
The supermarket and chain-store concern three days ago rejected Edelman's $35-a-share bid as inadequate. In rejecting the bid, Lucky said it planned to 'realize shareholder values in the near term,' but did not specify at the time how it planned to do so.
Analysts said divestiture of Gemco is the most significant means of increasing value for Lucky shareholders but suggested that spinning the division off to shareholders or selling it as part of a corporate restructuring would provide shareholders with a larger yield.
Lillie said Gemco haa been under earnings pressure for the past few years. 'Due in large part to changing market conditions, it has not been able to achieve adequate returns,' he added.
He described the closure of the Gemco stores as 'a painful but necessary step. We have assured all Gemco employees that we are committed to helping them in their transition to new positions.'
He said the divestiture was part of a restructuring program that will focus Lucky 'on its core food business.'
In Minneapolis, Target said it plans to remodel up to 54 buildings on the Gemco sites and open them as new Target stores.
Dayton Hudson and Target executives said the acquisition will allow the upscale discount chain to accelerate its expansion program.
Lucky operates 575 food stores in Arizona, California, Florida, Illinois, Indiana, Iowa and Nevada under the Lucky, Eagle, Kash n' Karry and Food Basket names. Gemco had 1985 sales of $2.4 billion.
Lucky's stock fell $1.625 to $36.125 a share in late Thursday trading on the New York Stock Exchange.
