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Executive Summary

Pay 'n Save management is playing a Trump to retain control of the company during its diversification efforts. The chain said Sept. 7 that its board had approved a $355 mil. merger offer from a group of investors headed by NYC-based Trump Group. The investors, Pay 'n Save noted, also include "a broad group of senior Pay 'n Save executives." In a statement announcing the board action, Pay 'n Save said that "the transaction will be affected by means of a cash tender offer for all shares subject to a minimum of approximately 51% of the outstanding shares being tendered. The tender offer at $22.50 per share will be followed by a cash merger at the same price. The tender offer is expected to begin in the next few days." The chain also noted that the board "granted to a corporation an option to purchase up to 4.1 mil. shares of the company's common stock" at the same price as the tender offer. The Trump Group controls the corporation, Pay 'n Save said. The 4.1 mil. shares represent almost 27% of the 15.2 mil. outstanding shares of the chain. The coalition with the New York financial concern gives Pay 'n Save execs a chance to continue their diversification program without worrying about an unfriendly takeover. Pay 'n Save's price has been depressed by investor concern with the chain's ventures into drug wholesaling, auto supply retailing and membership warehousing. The stock lost 30% in value between the start of the year and the end of April, as the Street reacted to Pay 'n Save's controversial acquisition of the whsle. operations of Northwestern Drug in February. Pay 'n Save stock had rebounded to the $20 per share range when the Trump proposal was announced on Aug. 31. At $22.50 per share, down from the chain's per share price of $25.875 at the start of the year, the Trump deal is a below-premium transaction. The chain's bottom line was threatened by mfr. opposition to its vertical integration move into drug wholesaling with the purchase of Northwestern. Five whslr.-only mfrs. terminated business with Northwestern after the acquisition, creating problems for the whslr. in trying to meet high volume hospital "charge-back" supply contracts. However, after Northwestern filed an antitrust suite, two of the mfrs. -- SmithKline and Lilly -- worked out agreements with Northwestern. According to trade sources, three other mfrs. named in the suit -- Pfizer, American Home Products, and Sandoz -- are close to coming to similar agreements with Northwestern.

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