Opinion ID: 703215
Heading Depth: 2
Heading Rank: 1

Heading: The LBO

Text: 4 The Dart Group Corp. (Dart) launched a hostile takeover attempt by acquiring 5.9 percent of Safeway's stock in May 1986. On July 9, Dart commenced a tender offer for all shares of Safeway stock at $58 per share. Safeway in turn sought a white knight in the form of KKR, and the two companies entered into negotiations regarding the possibility of an LBO. Safeway's board of directors provided confidential business information to KKR, but, at KKR's insistence, withheld it from Dart. On July 21, Dart raised its offer to $64 per share. Dart refused to up its price further without access to Safeway's confidential business information and protested the board's favoritism towards KKR in the bidding process. 5 Safeway's board rejected Dart's initial $58 per share tender offer on July 22. The board then voted to approve KKR's proposal, and on July 25, Safeway and KKR executed a Merger Agreement that set out the terms of the LBO. 1 Under the agreement's terms, KKR was to purchase up to 73 percent of Safeway's stock in a tender offer at $69 per share; the remaining shares would later be exchanged for debt securities and warrants. Safeway was required to pay a $15 million signing fee to KKR and agreed that, if the deal fell through, it would pay a $45 million termination fee as well. 6 The Merger Agreement authorized Safeway to pay its regular quarterly dividend of $26.2 million. Because the anticipated record date would fall after the closing date of KKR's tender offer, KKR was expected to receive 73 percent of that dividend.