SHAW'S TO YIELD REVERSE SYNERGIES

NEW YORK -- The pending acquisition of Shaw's Supermarkets by Albertsons offers the possibility of "more reverse synergies than I've seen in 30 years of doing acquisitions," Larry Johnston, chairman and chief executive officer of the Boise, Idaho-based company, said here last week."Many of the things Shaw's does will be exported back over the Albertsons network," Johnston told an audience of investors

NEW YORK -- The pending acquisition of Shaw's Supermarkets by Albertsons offers the possibility of "more reverse synergies than I've seen in 30 years of doing acquisitions," Larry Johnston, chairman and chief executive officer of the Boise, Idaho-based company, said here last week.

"Many of the things Shaw's does will be exported back over the Albertsons network," Johnston told an audience of investors at the seventh annual retail seminar sponsored by Lehman Bros. here.

He said the Albertsons integration team has been working at Shaw's for over a month, "and we are way ahead of schedule, with the potential synergies exceeding our goals."

He cited two specific areas in which reverse synergies from Shaw's to Albertsons would be possible: loyalty card marketing and technology.

"I've been very impressed by what Shaw's has done with loyalty card marketing," Johnston said. "They're probably two years ahead of us, and that will enable us to cut a tremendous amount of cost and effort out of what we were planning to do anyway.

"In addition, Shaw's is one of the first companies in the world, I believe, to replenish from scanning -- they are experts in that area -- and we will be able to benefit from that and other technology programs."

Albertsons said in late March it had signed a definitive agreement to acquire Shaw's from J Sainsbury, London, for $2.475 billion. Johnston said last week he anticipates the deal will close before the end of July.

He said the addition of the 202 stores Shaw's operates "is filling the void" left by Albertsons' sale or shutdown of more than 400 underperforming stores and its exit from four major markets in 2001 by adding approximately $4.6 billion in sales.

With Shaw's having boosted its market share in New England from 12% in 1996 to 20%, "we believe Shaw's is well-positioned for future growth," Johnston said, "and we are continuing to look for fill-in acquisitions in that market."

Johnston also said Albertsons will be on the lookout "for other opportunities to strengthen our asset portfolio."

Asked what synergies Albertsons will bring to Shaw's, Johnston cited two examples. "One of the obvious synergies will be in procurement, since a company of our magnitude offers substantial advantages for a company of Shaw's size," he said.

"There's also our expertise in drug store operations and pharmacies. Shaw's is not well-developed in that area, and I see a huge upside. We used to be in the New England market [with freestanding drug stores], so we know it well."

In other remarks:

Johnston said Albertsons' ad tag line, "Making life easier for customers," is designed to create the kind of instant brand recognition "that's the most powerful way to win customers for life."

Albertsons has been "very pleased," he said, with the initial step in its introduction of dual-branding in Southern California and Las Vegas -- the company's offer to give free movie tickets for two for every $200 spent at either an Albertsons supermarket or Sav-on drug store.

The introduction of the chain's Essencia premium private-label line resulted in an increase in private-label penetration of 66 basis point last year, compared with an average increase of 8 basis points among competing chains, Johnston said.

The rollout of Albertsons' "shop and scan" system to the Dallas-Fort Worth market is being supported by TV ads featuring actress Patricia Heaton, Albertsons' spokeswoman.

Separately, Albertsons said the Shaw's acquisition has received antitrust clearance.

The company said it expects the purchase to boost its net income for the year by 10 cents per share leading it to raise its earnings guidance to a range of $1.30 to $1.40 per share, up from $1.40 to $1.50 per share. Albertsons also said it expects first-quarter earnings from continuing operations to be 10 to 12 cents per share, after several one-time items, including the California labor dispute, which will cost 14 cents per share; investments in Southern California to win customers, which will cost 18 cents per share; the exit from the New Orleans market, which will cost 5 cents per share; and severance and restructuring costs incurred in the reorganization of the Dallas/Fort Worth division, which will cost 1 cent per share.