Fred Meyer Agrees To Buy Smith’s Food & Drug Deal Will Create ‘Retailing Powerhouse’

The retailer Fred Meyer Inc. is buying Smith’s Food & Drug Centers Inc. for $720 million in stock in a deal that will create a western retailing powerhouse.

Fred Meyer, based in Portland, is also assuming $1.3 billion in Smith’s debt in the deal, boosting the total value of the transaction to about $2 billion.

The combination will create a grocery and retailing company operating from Alaska to Texas, generating about $7 billion in revenue this year.

Smith’s stock closed up $3.75 at $43.75 per share and Fred Meyer’s closed up 75 cents at $42.62 in trading Monday on the New York Stock Exchange.

Smith’s, which is based in Salt Lake City, serves mostly mountain and southwestern states while Fred Meyer has stores that sell groceries and general merchandise in the Pacific Northwest and mountain states.

Fred Meyer also owns jewelry and specialty stores.

“This merger of equals will create a merchandising powerhouse across the western United States,” said Robert G. Miller, chairman and chief executive of Fred Meyer.

The companies expect to save $65 million a year as a result of cost savings, operating efficiencies and refinancing opportunities.

The deal is expected to be completed by the end of the summer, pending approval by shareholders and regulatory clearance.

Under terms of the agreement, approved by the boards of directors of both companies, Smith’s shareholders will receive 1.05 shares of Fred Meyer common stock for each share of Smith’s common stock.

Based on the closing price of Fred Meyer stock on Friday, the Smith’s stock would be worth $43.97 per share.

Shareholders controlling 65 percent of Smith’s stock have agreed to vote in favor of the deal.

The deal creates a holding company that will be based in Portland, Ore., for 374 stores and 45,000 employees. But both chains will retain their names and operate independently.

Smith’s had 1996 revenues of $2.89 billion, while Fred Meyer reported $3.72 billion.

Fred Meyer was founded 75 years ago by the late Fred G. Meyer, who was an early proponent of “one-stop shopping,” combining a grocery store with hardware, clothing and other items, all under one roof.

Smith’s was founded in Utah in 1948. The Smith family of Brigham City holds a 42 percent stake in the chain. The Church of Jesus Christ of Latter-day Saints holds 12 percent.

Ronald Burkle, chief executive of Smith’s, will become chairman of Fred Meyer while Miller will be president and chief executive.

Burkle, who has stakes in several supermarket chains, holds 23 percent of Smith’s stock.