Top Financial News
Wed, 18 Aug 1999, 2:57pm EDT
Delhaize to Buy Hannaford for $3.6 Bln, Expand Food Lion in
U.S. Northeast
By Steve Matthews
Salisbury, North Carolina, Aug. 18 (Bloomberg) -- Delhaize-
Le Lion SA agreed to buy rival Hannaford Bros. Co. for
$3.6 billion to expand its Food Lion Inc. grocery chain
into the
U.S. Northeast and keep pace with fast-growing rivals.
Delhaize, Belgium's biggest retailer, will pay $79 a share
in cash and stock in a new U.S. company and assume $300
million
in debt. The offer is a 24 percent premium and tops the
bids of
$65 to $70 a share analysts expected for Hannaford.
The retailer wants to catch up with competitors such as
Royal Ahold NV, Albertson's Inc. and Kroger Co., which have
been
scooping up other chains. Delhaize overpaid by about $600
million
to win the bidding contest for Hannaford, a steep price
that will
erode profit, investors said.
``The more appropriate thing for shareholders would have
been for Food Lion to sell out,'' said senior analyst Dan
Donovan
at American Express Asset Management, which owns 895,000
Food
Lion shares. ``They are intent on building a big company.''
Food Lion shares fell 2 7/16, or 22 percent, to 8 9/16 in
midafternoon trading. Hannaford rose 8 5/16 to 72. Delhaize
closed down 1.35 euros to 78.7 in Brussels.
Delhaize is paying 13.4 times Hannaford's trailing earnings
before interest, taxes and amortization of goodwill,
exceeding
the multiple of 8.5 times Ebitda in similar recent
transactions,
said analyst Alberto Montagne at Lehman Brothers.
``Certainly we paid a high price,'' said Delhaize Chief
Executive Pierre-Olivier Beckers. But, he added, it is
``absolutely essential to defend our market share.''
The purchase will reduce Food Lion's earnings per share by
20 percent next year, executives said.
Brussels-based Delhaize controls about 52 percent of Food
Lion's shares. Its plan was reported by the Wall Street
Journal.
Stores
Food Lion has 1,258 stores from Florida to Pennsylvania
with
$10.2 billion in sales last year. It is based in Salisbury,
North
Carolina.
Hannaford, with 152 stores under the Hannaford and Shop 'n
Save banners, had sales last year of $3.32 billion at
stores
throughout Maine, New Hampshire and Vermont and in parts of
Massachusetts, New York, Virginia, North Carolina and South
Carolina.
The chain, founded in 1883, is one of the last big grocers
available on the East Coast, analysts said. The purchase
will
make Delhaize the sixth-largest U.S. grocer.
Delhaize outbid Dutch retailer Ahold, the biggest grocer
along the East Coast, for Scarborough, Maine-based
Hannaford,
said a person familiar with the transaction.
``It probably was an opportunity that they would have liked
to have at the right price,'' Montagne said.
Ahold, based in Zaandam, Netherlands, has been buying
chains
such as Maryland-based Giant Food and New Jersey's
Pathmark.
Combinations
Supermarkets have been combining to cut costs and squeeze
savings from suppliers as their competitors expand and
low-price
retailers Wal-Mart Stores Inc., Costco Cos. and Kmart Corp.
add
more groceries to their stores.
The biggest supermarket chain, Kroger, bought Fred Meyer
Inc. for $13.5 billion. No. 2 Albertson's added American
Stores
Co. for $12.9 billion while Safeway Inc., the No. 3 chain,
last
month agreed to buy Randall's Food Markets Inc. for $1.8
billion.
``Even Food Lion ran the risk of being marginalized with
the
dramatic consolidation in the U.S. supermarket industry,''
said
Scott & Stringfellow analyst Andrew Wolf. ``They felt they
had to
do something.''
The 10 largest U.S. grocers now hold about half of the U.S.
market, up from 30 percent in 1994, according to the Food
Institute, a nonprofit trade association.
Delhaize will form a holding company, Delhaize America
Inc.,
to make the acquisition and future purchases. Delhaize
America
shares will be traded on the New York Stock Exchange, while
Food
Lion shares will be delisted.
Delhaize gets about 75 percent of its sales in the U.S.,
rising to more than 80 percent after the purchase, Beckers
said.
Food Lion Savings
The Hannaford purchase will result in annual cost savings
of
$40 million next year and $75 million by 2002, Food Lion
said.
``This is a strategic acquisition that will help fuel our
future growth,'' Food Lion Chief Executive Bill McCanless
said in
a statement.
Delhaize will finance the buyout with $2.7 billion in debt
and $600 million in new Food Lion shares that will later be
converted into Delhaize America shares. The debt will
include
bank loans and bonds but no convertible bonds, Beckers
said.
Food Lion in 1996 bought Kash n' Karry Food Stores Inc. for
about $342.5 million to bolster its position in Florida.
Hannaford's effort to expand in the Carolinas and Virginia
was stifled by Food Lion and others, such as Winn-Dixie
Stores
Inc. It closed several stores in the South.
On May 4, Hannaford's largest shareholder, Canadian grocer
Empire Co., said it would end an agreement regulating the
sale of
its 26 percent stake and the purchase of new stock.
Hannaford
shares have since jumped almost two-thirds in value.
J.P. Morgan & Co. was Food Lion's financial adviser while
Morgan Stanley Dean Witter & Co. advised Hannaford. The
legal
advisers were Akin, Gump, Strauss, Hauer & Feld LLP for
Food Lion
and Weil, Gotshal & Manges LLP for Hannaford.
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