SEC Rules May Force Grocers to Reveal Pact’s Terms

By KATE BERRY

Staff Reporter

The mystery shrouding the secret pact signed by the nation’s three largest supermarket chains may finally be lifted by the Securities and Exchange Commission.

Though Albertsons Inc., Kroger Co. and Safeway Inc. reached a deal last month that ended the longest grocery strike in U.S. history, the companies still have not disclosed how much money they redistributed via a secret revenue-sharing pact signed in August.

But under new SEC rules that don’t take effect until August, 11 items are being added to 8-K requirements, including “entry into any material agreement not made in the ordinary course of business.”

The rules are scheduled for release this week.

Under existing rules, companies are required to disclose material events in their annual reports within 90 days of the end of their fiscal year.

Until now, there has been debate as to whether the supermarkets must reveal the mutual aid pact, but the new rules specifically require that companies disclose such agreements.

“Under these rules it’s almost certain that they would have had to disclose the agreement within a few days of entering into the agreement,” said Charles Kaufman, a lawyer at Sheppard Mullin Richter & Hampton LLP, who is an expert in securities litigation.

Whether the new rules prompt the supermarkets to disclose the agreement sooner is an open question. None of the chains returned calls last week seeking clarification on whether they will file copies of the mutual aid agreement with their annual reports, one of which is due by the end of March.

However, all three chains have acknowledged that the strike and revenue-sharing agreement had a material impact on earnings in their respective fourth quarters. Safeway’s fourth quarter ended on Jan. 3, which would require its annual report to be filed by early April. Kroger and Albertsons each ended their fourth quarters on Jan. 31, which puts an early May deadline on filing their annual reports.

“This was clearly a material agreement and should have been viewed as that in the third-quarter disclosures,” Kaufman said.

The United Food and Commercial Workers Union unsuccessfully sought copies of the revenue-sharing agreement before and during the strike and lockout. California Attorney General Bill Lockyer sued the three supermarket chains in December, claiming the secret agreement violated anti-trust laws.

Lawyers for the supermarkets maintain that the agreement is legal, because it falls under exemptions to anti-trust laws that give unions and employers the ability to collaborate with each other, said Robert Pringle, a lawyer who represents Kroger.

Safeway reported losing $102.9 million in the last three months of the year due to the labor impasse. Albertsons has estimated its losses cut quarterly profit by roughly $90 million, while Kroger, whose Ralphs stores remained open without pickets during most of the dispute, said the California lockout and a small work stoppage in West Virginia, cut quarterly profit by $156.4 million.

Kroger’s losses were deepened and the others lessened by amounts it was obligated to pay to the other chains.

Previously, companies have been required to disclose only nine specific events in 8-K filings. Examples include a change in control of the company, its accountants or its fiscal year, an acquisition or sale, a bankruptcy, or the resignation of a director.

Under the new rules, companies are required to disclose 20 kinds material events, including entry into or termination of a material agreement not made in the ordinary course of business and financial obligations material to a company.

The SEC made other changes to its 8-K disclosure rules, including shortening the deadlines to file “triggering events” to four business days from five after such an event occurs.

The SEC proposals are part of a longstanding agenda to move toward real-time disclosure and to strengthen disclosure in the wake of the various corporate scandals.

Securities lawyers are examining the new rules to determine how they will affect public companies that already are complaining about the costs of complying with Sarbanes-Oxley legislation.