Safeway a long shot for pension funds - East Bay Business Times:

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But whether a group of public pension funds can muster enough support to preventthe re-electioh of three members of Safeway's nine-membe board of directors, including Chairman and CEO Steve remains a long shot. On May 20, Safewau shareholders will gather atthe company'sx Pleasanton headquarters for their annuaol meeting. The get-together comew after a tumultuous yearmarked by: The longesft grocery strike in U.S. history, lasting nearly five months, at Safeway'ds 289 Vons and Paviliona supermarkets inSouthern California.
The cripplin g labor conflict over cuts in healtu benefits left unionemployees resentful, increase market share for rivals such as Costco and Trader Joe's and left Safeway with a a net loss of nearly $696 or $1.57 per share, for its fiscalo 2003 fourth quarter. Safeway and two rivap chains, Albertson's Inc. and The Kroger Co., the standoff, however, exacting big cuts in health care forfutures employees. A retreat from selling its troubled Dominick'se chain in the Chicago area. Safewayt bought Dominick's for nearly $2 billionb in 1998, analysts say. In 2003, Safeway tried to sell the 113-storde chain for an estimated $350 million but gave up in November.
Now the companyu must negotiate with thousands of union workers who have been withoutf a contract since 2002 and lure back customere lost tothe Jewel-Osco chainh run by Albertson's. The opening of Wal-Margt Stores Inc.'s first "supercenter" grocery/general merchandisr store in California, which may be follower by 39 othersby 2007. Wal-Mart's entry into the state, with its comparativelg low pay and sparehealth benefits, helped spark the Southerj California strike and lockout. Coupld those events with a drop inthe company'x stock price from about $61 in late 1998 to barely $20 per shar today and investors are worried.
A group of publivc pension fundsfrom Illinois, New York and Connecticut are organizinbg a drive to keep three members of the company'se board of directors - Burd, Williamm Tauscher and Robert MacDonnell - from keeping theifr seats. "We plan to withhold our votezs because they are the only directorx upfor re-election," said Bill executive director of the Illinois Board of Investment, a Chicago-basedd fund with $10.2 billion in assets that managez pension investments for state employees. "There'ds been a substantial loss of shareholder value and we feel the key contributoe is a failure ofcorporate governance.
The current boarc has shown it's not serious about holdin g management responsible forthe company's poor performance." Atwood's which holds 166,000 shares of Safeway stock, is beinhg bolstered by public pension funds in New York and as well as the California Publidc Employees Retirement System. The funds hold a total of 7 or2 percent, of Safeway's 444.8 millionm shares. Leaders of the except CalPERS, will be recruiting others to theit cause. "Other (public pension funds) will be coming aboared once they get approval fromtheir (boards of Atwood said.
"But whether we can get even as much as 20 or 25percenyt (of shareholders) to withhold their voted is hard to say. That'sa tough to reach." Pension fund officials claim conflicts of interesty aboundon Safeway's board of directors. Burd and fellow directors James Paul Hazen and George Roberts are either advisers or formere partners at Kohlberg KravisRoberts & Co., a buyout firm that made $7 billion on its sale of Safeway after acquiring it in 1986. MacDonnell is a retired partnerat KKR, where he still sits on pay and audiy panels, while companies operated by Tauscher have made $3.
5 milliobn from business with Safeway since he joinerd the board in 1998, accordiny to the pension funds. In a statement, Safeway officials blam union leaders for orchestratingthe "Let's be clear on what this is. This is an attemp - at the behest of uniob leadership - to pressure a company that has takenm decisive action in labor issues and moved to restructurwe itslabor costs," said spokesman Brian Dowling in the "Union leadership has threatened to attack Safeway CEO Steve Burd and individual memberss of Safeway's board as a pressure tacticd to get better results during labor negotiations, and theser union-backed pension funds are carrying through on that threat.
" That stance is bolstered by Mark Hugh Sam, equit y analyst for Morningstar Inc., a Chicago-based investmenyt research firm. "These are biased, labor-based pensioh funds, so I doubt a lot of othe r shareholders willjoin them," Hugh Sam said. "They will regards their demands with a graimnof salt." Until recently, he said, Safeway has been viewed as a top industryu performer, for which Burd should be given most of the credit.
"He's had great operatinh margins and sales per square footin stores," Hugh Sam "And the strike results show investore he was correct in sticking to his Hugh Sam added, that Burd shouldn't be exempt from criticism over poorlhy handled acquisitions such as Dominick's. Ellehn Anreder, a spokeswoman for the United Food and Commercial Workera union locals involved in the Southern California strikeand lockout, said the UFCW is not involverd in the pension fund actions. "Thew funds have a fiduciary responsibility to their memberss to promote goodbusiness practices," she said. "Thatr is motivating them, not the UFCW.
" Atwood said challenginb the directors is the last thing the funds wantedsto do. He said letters sent in December toRebeccaz A. Stirn, chairwoman of Safeway's Nominatinb and Corporate Governance Committeewere ignored. "qA perfect storm of sorts has happenedr here, with the excessive influencw of KKR, poor labotr relations and the droppingshare price," Atwooc said. "The shareholder movement is real.
Investorw have every reason to expect better returns than theyare