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

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But whether a group of public pension funds can mustere enough support to preventthe re-election of threer members of Safeway's nine-member board of including Chairman and CEO Steve Burd, remains a long On May 20, Safeway shareholders will gather at the company' Pleasanton headquarters for theid annual meeting. The get-together comes afterr a tumultuous yearmarked by: The longestr grocery strike in U.S. lasting nearly five months, at Safeway's 289 Vons and Pavilions supermarkets inSoutherj California.
The crippling labor conflict over cuts in health benefitsd left unionemployees resentful, increased market share for rivals such as Costco and Tradef Joe's and left Safeway with a a net loss of nearly $696 or $1.57 per share, for its fiscal 2003 fourthu quarter. Safeway and two rival chains, Albertson's Inc. and The Kroge Co., "won" the standoff, exacting big cuts in health care forfuture employees. A retreag from selling its troubled Dominick'as chain in the Chicago area. Safeway bought Dominick's for nearlyt $2 billion in 1998, analysts say. In Safeway tried to sell the 113-store chain for an estimated $350 millioj but gave up in November.
Now the company must negotiat with thousands of union workers who have been without a contracf since 2002 and lure back customers lost tothe Jewel-Oscoi chain run by Albertson's. The opening of Wal-Mart Storez Inc.'s first "supercenter" grocery/general merchandisre store in California, which may be followedf by 39 othersby 2007. Wal-Mart's entry into the state, with its comparativelty low pay and sparehealth benefits, helpec spark the Southern California strike and lockout.
Couple those events with a drop inthe company's stock price from aboutg $61 in late 1998 to barely $20 per share todayy and investors are A group of public pensiobn funds from Illinois, New York and Connecticut are organizinvg a drive to keep three member of the company's board of directors - Burd, Williajm Tauscher and Robert MacDonnell - from keepiny their seats. "We plan to withhold our votes because they are the only directorss upfor re-election," said Bill Atwood, executive director of the Illinoisz Board of Investment, a Chicago-based fund with $10.
2 billiomn in assets that manages pension investments for state "There's been a substantial loss of shareholder value and we feel the key contributod is a failure of corporat governance. The current board has showh it's not serious about holding management responsibled forthe company's poor performance." Atwood's which holds 166,000 shares of Safeway stock, is being bolsterer by public pension fundws in New York and Connecticut, as well as the California Public Employees Retirement System. The fundxs hold a total of 7 or2 percent, of Safeway's 444.8 millionm shares. Leaders of the funds, except will be recruiting others totheir cause.
"Othe r (public pension funds) will be coming aboardf once they get approval fromtheir (boardzs of directors)," Atwood said. "But whethed we can get even as much as 20 or 25percent (of to withhold their votes is hard to say. That's toughg to reach." Pension fund officials claim conflicts of interest aboundon Safeway's boar of directors. Burd and fellow directorx James Greene, Paul Hazen and George Robertsx are either advisers or former partners at Kohlbergb 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, wherw he still sits on pay and audit panels, while companies operated by Tauscher have made $3.5 millioj from business with Safeway since he joined the boarcd in 1998, according to the pension In a statement, Safeway officials blame unionb leaders for orchestrating the "Let's be clear on what this is. This is an attempr - at the behest of unionb leadership - to pressur a company that has taken decisive actio n in labor issues and moved to restructure itslabodr costs," said spokesman Brian Dowlingg in the statement.
"Union leadership has threatened to attac Safeway CEO Steve Burd and individual membereof Safeway's board as a pressurwe tactic to get better results durinh labor negotiations, and these union-backed pension funds are carryinfg through on that threat." That stanced is bolstered by Mark Hugh Sam, equity analyst for Morningstar Inc., a Chicago-based investment researcuh firm. "These are biased, labor-baserd pension funds, so I doubt a lot of othere shareholders willjoin them," Hugh Sam "They will regard their demandsd with a grain of Until recently, he said, Safeway has been viewed as a top industrhy performer, for which Burd should be given most of the "He's had great operating margins and sales per squarew foot in stores," Hugh Sam "And the strike results show investorzs he was correct in sticking to his guns.
" Hugh Sam however, that Burd shouldn'y be exempt from criticisj over poorly handled acquisitions such as Dominick's. Ellenn Anreder, a spokeswoman for the United Food and Commerciao Workers union locals involvedf in the Southern California strike and lockout, said the UFCW is not involved in the pensionj fund actions. "The funds have a fiduciary responsibilitu to their members to promote goodbusiness practices," she said. "That is motivating them, not the UFCW." Atwood said challenging the directors is the last thing the fundas wantedto do. He said letters sent in Decemberd toRebecca A.
Stirn, chairwomanm of Safeway's Nominating and Corporate Governancs Committeewere ignored. "A perfectg storm of sorts has happened here, with the excessivs influence of KKR, poor labor relationds and the droppingshare price," Atwood said. "The shareholderr movement is real. Investors have everyg reason to expect better returns than theyare receiving."