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Yucaipa Sues Safeway; Chain Responds

LOS ANGELES -- Private investment company Yucaipa Cos. has filed a lawsuit charging Pleasanton, Calif.-based Safeway, Inc. with conducting a "biased and unfair sales process" aimed at preventing Yucaipa from acquiring Safeway's Dominick's Finer Foods chain.

In a press release Tuesday, Yucaipa said it filed a suit in Superior Court, adding that Safeway devised a plan to use Yucaipa and its strong union relationships to facilitate a sale of Dominick's to "anyone but Yucaipa." Safeway didn't conduct a "fair and impartial bidding process," Yucaipa said.

Safeway, which originally acquired Dominicks' from Yucaipa in 1998, has been in a labor dispute with the United Food and Commercial Workers Union (UFCW), which represents many Dominick's employees, Yucaipa said. Last year, it averted a strike at the Chicago-area chain by promising the UFCW that it would sell Dominick's to a "union-friendly purchaser," Yucaipa said.

According to Yucaipa's complaint, Safeway allowed Yucaipa to make a bid for Dominick's as part of a strategy designed "to use Yucaipa's union influence" to make it easier for another buyer to achieve labor peace.
Safeway refused to allow Yucaipa to participate in the bidding process unless it pledged to "use its best good-faith efforts to procure collective bargaining agreements with Dominick's unions," regardless of whether it wound up acquiring the chain, Yucaipa said.

A Yucaipa spokesman said Yucaipa and the supermarket chain began talks about Dominick's last December, and Yucaipa submitted an initial bid April 4. Yucaipa's proposal included about $300 million in cash, $50 million for the benefits Yucaipa projected it would generate from a successful acquisition of the infrastructure of Eagle Foods, and assumption of Dominick's closed stores, according to the complaint.

Yucaipa believes that its bid for Dominick's "was the highest and best offer received by Safeway." On July 3, Safeway announced that it planned to sell Dominick's to SuperValu, Inc.

Later, Safeway threatened litigation if Yucaipa didn't send letters to the unions stating it was no longer interested in Dominick's and supporting Safeway's selected purchaser.

Yucaipa is asking the court for declaratory relief, monetary damages, rescission of the letter agreement, and an injunction requiring Safeway to stop its current negotiations and reopen the bidding for Dominick's in "a fair and impartial" way.

After reviewing the complaint, Safeway issued the following statement: "The allegations in Yucaipa's complaint are completely without merit. Safeway conducted a fair auction, using one of the world's leading investment bankers, and Yucaipa was not the winning bidder. Safeway chose to proceed with the bidder whose bid, based upon advice of its investment bankers, was the best.

"Yucaipa, rather than accepting the fact that it lost, has chosen to make unfounded allegations. Its assertion that Safeway would sell to 'anyone but Yucaipa' is simply false. Yucaipa was given an opportunity to submit the best bid. It did not do so. Safeway hopes and expects that the winning bidder will be able to negotiate satisfactory agreements with the labor unions representing Dominick's employees and then proceed to purchase the company. Safeway believes that Yucaipa's lawsuit will not interfere with this anticipated sale.

"Yucaipa's complaint and press release make it clear that it is trying to avoid its express contractual obligations to Safeway. Yucaipa willingly agreed that if for 'any reason' Safeway did not select its offer, including that Safeway 'in good faith determines that [Yucaipa's offer] is less favorable than...offers made by [another] party,' Yucaipa would advise union officials 'verbally and in writing that [it] is no longer interested in buying Dominick's and [is] supporting the party or parties selected by Safeway.' Safeway has been trying for over a month to get Yucaipa to comply with the contractual obligations it willingly undertook.

"Yucaipa has ignored its obligations, and when faced with a demand to enforce these obligations, Yucaipa responded with a frivolous lawsuit. Safeway plans to file a counterclaim against Yucaipa for damages, specific performance, and injunctive relief to enforce Yucaipa's obligations to Safeway. Safeway looks forward to setting the record straight in court."

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