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Safeway faces court battle over chain's sale

Safeway, based in Pleasanton CA, has been sued by Yucaipa Companies, which contends the grocery retailer conducted an Òanyone but YucaipaÓ campaign when it put its DominickÕs Finer Foods subsidiary up for sale earlier in 2003, according to aHouston Chronicle newspaper article.

The suit, filed August 4 in Los Angeles Superior Court, claims that Safeway didnÕt seriously consider selling DominickÕs and its 113 stores to Yucaipa, the Los Angeles-based investment arm of billionaire Ron Burkle. Safeway purchased DominickÕs from Yucaipa in 1998 for $1.8 billion, and Yucaipa would have taken it back for a fraction of that. Yucaipa offered $300 million in cash and $50 million in preferred stock, according to the suit.

Safeway declared the value of Chicago IL-based DominickÕs as $315 million in a regulatory filing two weeks ago.

The suit contends that in arranging the chainÕs sale, ÒSafeway intended to use Yucaipa as a Ôstalking horseÕ to gain union support for the Ôanyone but YucaipaÕ company who would ultimately be chosen by Safeway to purchase DominickÕs.Ó

Yucaipa signed an agreement during the auction pledging to encourage DominickÕs union leaders to support the chainÕs sale, anticipating that it would win. However, Safeway reportedly reached a preliminary agreement to sell DominickÕs to SuperValu of Eden Prairie MN in late June. Neither company has commented publicly about the deal.

Safeway spokeswoman Melissa Plaisance said August 5 that the company has an unnamed buyer and that Yucaipa apparently didnÕt submit the winning bid.

Yucaipa purchased DominickÕs in 1995 for $693 million and sold it to Safeway for more than double that price.

Safeway plans to file a counterclaim against Yucaipa for damages, specific performance, and injunctive relief to enforce YucaipaÕs obligations to Safeway.

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