Bi-Lo LLC agreed to buy Winn-Dixie Stores Inc. (WINN) for about $560 million, more than tripling the supermarket operator’s number of stores in the U.S. South to almost 700 and helping it compete with Wal-Mart Stores Inc. (WMT)
The cash offer of $9.50 a share is 75 percent higher than Winn-Dixie’s closing price on Dec. 16, the companies said today in a statement. The retailers said they don’t expect to close any stores as part of the transaction.
Bi-Lo approached Winn-Dixie earlier this year, seeking to acquire the chain to boost sales growth, reduce costs and expand into four new states, Bi-Lo Chairman Randall Onstead said today in an interview. The takeover will help Bi-Lo compete with larger rivals such as Wal-Mart and Delhaize Group SA’s (DELB) Food Lion, Onstead said.
Winn-Dixie provided “absolutely the best geographic fit for us,” Onstead, 55, said by telephone from Greenville, South Carolina, where Bi-Lo is based. “There will be real dollar savings as we look for efficiencies in putting these companies together,” he said, declining to provide specifics.
Winn-Dixie surged 70 percent to $9.24 at the close in New York. The Jacksonville, Florida-based company’s shares had declined 24 percent this year before today.
Ethnic, Local Foods
The deal is the fourth-largest acquisition of a food retailer in the U.S. in the past five years, according to data compiled by Bloomberg. It creates a company with about 690 grocery stores in the southeastern U.S. and 63,000 workers.
Closely held Bi-Lo operates 207 supermarkets in South Carolina, North Carolina, Tennessee and Georgia. With 480 stores, Winn-Dixie also operates in Georgia, as well as Florida, Alabama, Louisiana and Mississippi.
Bi-Lo stores will incorporate Winn-Dixie’s efforts to stock its supermarkets with a variety of ethnic and local foods for its base of diverse customers, Onstead said.
The purchase values Winn-Dixie at 3.9 times earnings before interest, tax, depreciation and amortization in the past 12 months. That compares with a median of 7.9 times for supermarket deals globally since 2000, according to data compiled by Bloomberg.
The valuation is “hardly awe-inspiring” and signals that takeovers of other food retailers are unlikely, said John Heinbockel, an analyst at Guggenheim Securities LLC in New York.
Integrating mergers would represent “an unwelcome distraction” for executives focusing on improving operations in a “challenging environment,” Heinbockel wrote today in a note to clients.
“Given current valuations, we think most companies would rather safely repurchase their own shares,” said Heinbockel.
Bi-Lo agreed to pay a premium of 74 percent more than the average 20-day trading before the announcement, according to data compiled by Bloomberg. The buyers of more than 60 U.S. companies in the food-retail industry paid an average premium of 36 percent in the past five years, the data show.
Lone Star Funds, a Dallas-based private-equity firm, agreed to acquire Bi-Lo from Royal Ahold NV (AH), a Netherlands-based supermarket operator, in 2005. Bi-Lo filed for bankruptcy in South Carolina in March 2009 with a maturity looming on a $260 million term loan. It emerged from Chapter 11 reorganization in May 2010.
Winn-Dixie filed for bankruptcy protection in 2005, according to its website. The supermarket chain emerged from Chapter 11 in 2006 and its shares began trading on the Nasdaq Stock Market.
Winn-Dixie’s board has approved the transaction and recommends shareholders vote in its favor. The combined company’s executive team and headquarters location will be decided as the takeover moves closer to completion, according to the statement. The deal is expected to close in the next 60 to 120 days.
William Blair & Co., Citigroup Inc., Deutsche Bank AG, Food Partners and Alvarez & Marsal Inc. provided financial advice to Bi-Lo. Goldman Sachs Group Inc. advised Winn-Dixie.
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