Takeover Vulnerability Rumored : American Stores Stock Gains in Heavy Trading

For the second day in a row, the stock of American Stores Inc. gained sharply in heavy trading Wednesday on stock market speculation that the company is undervalued and could be vulnerable to a takeover attempt.

The Irvine-based food and drugstore giant declined to comment on the market rumors.

American Stores stock closed Tuesday on the New York Stock Exchange at $57.375 per share, up $2.125, on volume of 220,400 shares. Average daily volume for the stock is about 84,700 shares. On Tuesday, the stock rose $2.625 per share on volume of 118,900 shares.

It is the second time in recent months that the stock has posted large gains amid rumors of a buyout. In late October, American Stores shot up to $64 per share on rumors that the company could be acquired or was considering a restructuring.

Fueled by Analyst

The activity appears to have been fueled by a report by C.J. Lawrence analyst Robert Raiff, who rated the American Stores stock as “undervalued.” Raiff could not be reached for comment Wednesday.

John B. Kosecoff, a securities analyst for First Manhattan Co. in New York, said he was aware of “no imminent restructuring or other corporate transaction being initiated by the company” that would account for this week’s heavy trading.

“We have no reason to believe there is any takeover attempt that’s going to be initiated from outside,” Kosecoff said.

Kosecoff agreed that American “without a doubt” has been undervalued and said that he believes that the stock “remains attractive even at current prices . . . for those investors who are prepared to wait 3 to 5 years.”

The Dow Jones News Service reported Wednesday that Richard E. Pyle, an analyst at Piper Jaffray & Hopwood of Minneapolis, Minn., said a court decision blocking the consolidation of American’s Alpha Beta and Lucky Stores chains could make American Stores “vulnerable to a takeover attempt.

In September, a federal court temporarily blocked the combination of the two chains. That decision is being appealed. American Stores acquired Lucky Stores earlier this year in a $2.5-billion transaction.

But Jonathan Ziegler, an analyst at Sutro & Co. in San Francisco, wasn’t so sure.

“If American has to spin off Lucky and can’t keep the chain, (the company) will have to sell it for less than it paid,” Ziegler said. “Anybody who wants to take over American has to take that into consideration.”