Famed supermarket investor Ron Burkle appears to have wooed Wild Oats Market ( OATS) in his bid to raise his ownership stake in the company. Burkle, through his hedge fund, Yucaipa, increased his stake in the organic foods chain to 15%, and the company amended its shareholder rights agreement to allow him to buy up to 20% of its stock. Wild Oats said in a regulatory filing Tuesday that it amended an earlier rights agreement with Wells Fargo Bank ( WFC) to exclude Burkle and Yucaipa from the definition of "acquiring person." This allows the firm to acquire beneficial ownership up to 20% of Wild Oats' outstanding common stock without triggering its so-called poison pill, a mechanism designed to prevent takeovers from outside investors. "This indicates that Wild Oats looks at Burkle as a potential acquirer positively," says Scott Van Winkle, analyst with Canaccord Adams. "It's not like he's going to make a run at the company without their cooperation. The only reason to have a shareholder rights plan is to avoid acquisitions you don't want, so this means they probably have interest in having Burkle buy them." But Sonja Tuitele, a Wild Oaks spokeswoman, downplayed Burkle's moves. "Anything can happen, but I wouldn't take this as a sign
that Burkle is trying to take control of the company ," Tuitele says. "If his stake went above 20%, then we would be getting into control issues, but he has said he wants to remain a passive investor. He has not asked for a board seat. He likes the progress we're making, and he thinks this is a good space to be involved with, so he wanted to increase his ownership stake." Burkle is no stranger to the process of buying grocery chains. Long a proponent of consolidation in the supermarket industry, he bought Chicago-based Dominick's for $700 million in the 1990s and sold it to Safeway ( SWY) three years later for $1.8 billion. He was also chairman of grocery chain Fred Meyer while Wild Oats' current chairman, Robert Miller, was CEO.
Last year, Burkle was a bidder for Albertsons ( ABS), the grocery chain that recently agreed to be sold to an investment group including Supervalu ( SVU) , CVS ( CVS) and Cerberus Capital Management. Now Miller, who is also the chairman of Rite Aid ( RAD), is leaving his spot on Wild Oats' board to become chief executive of Albertsons. Two other Wild Oats board members, David Chamberlain and Mark Retzloff, also said they won't seek re-election to the board, citing external obligations. Van Winkle says Burkle may suspect that Albertsons is interested in acquiring Wild Oats, so his latest move could be an attempt at pre-emption. Burkle quietly
disclosed in February that he boosted his stake in the natural-foods chain to 14.9% from 9.2%. Tuitele says it's unlikely that Burkle will try to raise his stake above the 20% threshold, and she declined to comment on whether Wild Oats would change its shareholder rights plan again in order to allow him to do so. Wild Oats trails Whole Foods Market ( WFMI) in the organic foods space, an area of recent growth in an industry that has otherwise been plagued by competition from discount retailers like Wal-Mart ( WMT) and Target ( TGT). Wal-Mart, the world's largest retailer, recently announced plans to expand its organic food offerings . Wild Oats, which also runs a food chain called Henry's Marketplace, has consistently been less profitable than Whole Foods. The Boulder, Colo.-based chain has long struggled with a hangover from an acquisition binge in the 1990s that doubled its size under the leadership of its founder, Mike Gilliland. It moved into bad store locations in far-flung areas, and it almost went bankrupt as a result. In 2001, Perry Odak, the former head of ice cream maker Ben & Jerry's, was brought on as president and chief executive. He has tried to bring the company's cost structure in line and gets its store mix right, but analysts say the process has been slower than expected.
In a sign that things are looking up, Wild Oats last month said it swung to a fourth-quarter profit of $3.3 million, or 11 cents a share, compared with a loss of $34.7 million, or $1.22 a share, a year earlier. The improvement reflected higher gross margin rates, and its sales and earnings estimates for 2006 came in ahead of Wall Street's forecast. Shares of Wild Oats were recently down a penny to $18.99.