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California Supermarket Chain Shares Rise on Labor Deal

Shares of grocery stores embroiled in a labor dispute in southern California rose Wednesday after the companies brokered a tentative deal with the workers' union on a new contract.

Supervalu's Albertson's, Kroger's Ralphs and Safeway's Vons and Pavilions stores have been battling with the United Food and Commercial Workers over a new contract since January. The last contract, which covered 65,000 workers at 785 stores, expired in March but has been renewing automatically as the two sides work to hash out an agreement.

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The negotiations centered on a union demand to eliminate requirements for waiting periods of a year or more for new hires to qualify for health coverage and caps on pay. The union also wanted wage increases for all employees.

Details of the new agreement were not yet disclosed. The agreement must be ratified by a majority of grocery workers in a vote set to begin Sunday.

The tentative deal helped ease fears that a strike could break out and cost the stores hundreds of millions of dollars. Workers at all three stores have authorized the union to call a strike if a deal isn't reached.

Bank of America Securities analyst Scott A. Mushkin said in a note to investors that since the risk of a strike has been eliminated, shares of all the companies should rise.

"The news will likely be a near-term catalyst for Kroger and the others, and it significantly reduces one of the major risks to our 'Buy' thesis," Mushkin said.

Four years ago, a strike cost the companies close to $2 billion in sales, by some estimates. In that dispute, union leaders ordered a strike against Vons and Pavilions stores. Management at Albertson's and Ralphs responded by locking out employees.

Bear Stearns analyst Robert Summers said in a client note that the from all accounts, the deal appears to be a sound agreement for the companies and cautioned investors to look at the overall agreement and not the details.

"We also remind investors that the contract contains many provisions and not to focus too much on any single feature -- such as healthcare -- as the negotiations generally allow for savings in other areas to compensate and still maintain the companies' net economic objectives," Summers said.

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