Pressure mounting on Vons’ owner Safeway

Thursday, April 8, 2004 | 9:17 a.m.

BLOOMBERG NEWS

PLEASANTON, Calif. -- The California Public Employees' Retirement System, the biggest U.S. pension fund, said Wednesday it supports a coalition seeking to oust Safeway Inc. Chairman Steven Burd and two directors from the grocer's board because of losses and conflicts. Safeway owns the Vons supermarkets in Las Vegas.

The fund in a statement cited $1 billion in losses over the last two years, a "lack of responsiveness" to shareholders and ties to former Safeway owner Kohlberg Kravis Roberts & Co. among reasons for its earlier decision to withhold votes for Burd, who is also chief executive, William Tauscher and Robert MacDonnell.

Calpers lent its weight to a growing campaign to overhaul Safeway's management by investors who say Burd, 54, failed to spur earnings growth at the No. 3 U.S. grocer. McDonnell is one of five board members with ties to Kohlberg Kravis Roberts, the buyout firm that acquired Safeway in 1986 and sold its stake in the chain between 1996 and 2000.

"We support the efforts of the coalition of other pension funds who are likeminded and who are working together to encourage investors to withhold votes," Rob Feckner, the Sacramento-based fund's investment committee chairman, said in the statement.

Four public employee pension funds including the New York State Common Retirement Fund and Connecticut Retirement Plans and Trust Fund on March 25 began a "vote no" campaign against the Safeway directors up for reelection at the company's May 20 shareholder meeting. The Oregon Public Employees Retirement Fund said Monday after a meeting of 93 Safeway shareholders that it will withhold its votes.

Calpers cited a decision by Safeway's board to ignore a majority shareholder vote last year to expense stock options and MacDonnell's ties to Kohlberg Kravis Roberts as reasons to withhold its votes. The fund also said MacDonnell, 66, and Tauscher, 54, sit on the audit committee that allowed Safeway's external auditor to perform non-audit work.

"Calpers decision overlooks the facts about Safeway's performance," Safeway spokesman Brian Dowling said in a statement. "Over the last 11 years the company's share price has outperformed the entire retail sector. In fact, since 1992 investors have seen an eight-fold increase in Safeway's share price. The company's more recent stock price performance is in line with the rest of the supermarket sector, which has been under pressure from non-union discounters and a weak economy."

The Safeway "vote no" campaign follows a similar one at the Walt Disney Co. At Disney, 43 percent of shareholders withheld their votes to reelect Chief Executive Officer Michael Eisner as board chairman. After the March vote, the Disney board removed Eisner as chairman and gave the job to George Mitchell.

"All indications are that the Safeway board is likely to get a huge wakeup call," Calpers spokeswoman Pat Macht said.

The funds planning to withhold their votes for the three directors hold 7.5 million shares, or about 1.7 percent of Pleasanton, California-based Safeway's outstanding shares.

Shares of Safeway fell 28 cents to $21.06 at 4:01 p.m. in New York Stock Exchange composite trading Wednesday. They've gained 2.9 percent since the campaign started.

The Washington State Investment Board's public markets committee voted Tuesday to recommend drafting a letter to Barclays Global Investors supporting the campaign. Barclays manages the stock index fund that holds Washington's $12.6 million Safeway shares as well as proxy voting rights .