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[12 comments]

BI-LO Accepts Food Lion Offer

October 6, 2009

By George Anderson

Delhaize Group has entered into a non-binding Letter of Intent to have its Food Lion division acquire most of BI-LO's assets for $425 million in cash. BI-LO, which has been operating under Chapter 11 bankruptcy protection since March, has 214 stores in the Carolinas, Georgia and Tennessee.

Rick Anicetti, executive vice president of Delhaize Group and president and chief executive of Food Lion, said in a press release to announce the deal, "We at Food Lion, LLC have great admiration for the associates and stores at BI-LO. We believe our markets and service philosophy are complementary and we look forward to continuing our discussions with BI-LO."

Food Lion operates roughly 1,300 stores in 11 Southeastern and Mid-Atlantic states under the Food Lion, Bloom, Bottom Dollar, Harveys and Reid's banners.

Christy Phillips-Brown, a spokesperson for Food Lion, told The Sun News, "It's too early to speculate on possible outcomes. Since both companies are in discussions, we don't have any additional information to share at this time."

Discussion Question: What do you think Food Lion should do with BI-LO if the proposed acquisition of assets goes through? How could it be best positioned in the market relative to its other banners?

FINANCIALS:     [EBR:DELB] [NYSE:DEG]

Discussion Questions:

While we value unfettered opinion, we urge you to show respect and courtesy for people or companies about whom you comment. Keep in mind that this is a public, professional business discussion. RetailWire reserves the right to edit or refuse the publication of remarks that we deem unsuitable. We may also correct for unintended spelling and grammatical errors.

Instant Poll:

Should the BI-LO name continue, assuming the chain is acquired, or should remaining stores be converted to one or more of the banners operated by Food Lion?

Comments:

First, the sales per square foot at BI-LO and Food Lion are well below average compared to superior competitors such as Wal-Mart, Publix and Harris Teeter. So Food Lion will need to shut down many of the stores or consolidate some Food Lion units into the BI-LO stores.

I've looked at the market share line up in the various metro markets and it appears Food Lion will be able to catch up some but will still be an also-ran compared to Wal-Mart and Harris Teeter. I would guess that there will be a minimal increase in net stores for Food Lion since they will probably close half the BI-LO stores and the other half will be consolidations of one or two Food Lions into the remaining BI-LOs.

Expect the usual press releases to employees saying there will be no changes and everything will be beautiful. But we all know most of those BI-LO stores have dropped to Winn-Dixie-esque sales per square foot levels. They might look pretty but the real dollars are at Wal-Mart, Harris Teeter, and Publix. Therefore, Food Lion has no choice but to shutter stores and consolidate.

David Livingston, Principal, DJL Research

This was an excellent step for both companies. BI-LO today has strong management and is already in the process of a turnaround.

Sandy Miller, President, Miller Zell

I don't understand the hubris that causes an acquiring entity to eliminate the brand names of the firms they acquire. I can't think of ANY of these brand eliminations (especially in retail) that had a positive outcome. The best outcome has been neutral, the worst (think Marshall Field's) have been a disaster.

I understand there are expense savings associated with having only one name to market, but the loss of goodwill seems to render it a shortsighted decision.

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Paula Rosenblum, Managing Partner, RSR Research

I'd be willing to bet the BI-LO name is so badly beaten at this point that re-branding the locations would be the best possible solution. Consumers can only be strung along so many times with promises from new management and/or owners. The brand may very well be worthless and the Food Lion concept could be a welcome change.

Here's one issue though. BI-LO typically has bigger stores than Food Lion and at one point, the stores had lots of "bells and whistles" which made shopping more interesting.

Food Lion is not known for providing a stellar shopping experience. It is very much a generic grocery store, albeit a good one. This may be the time to expand the Bloom concept, or at least update the Food Lion shopping experience.

'ajs3444'

If the proposed acquisition goes through, and there are some implicit benefits and assets to be gained for $425 million in cash, Food Lion should still ask, "What are we thinking?"

BI-LO stores will not get more beautiful just because Food Lion is their plastic surgeon. Food Lion should shutter the poorest performing BI-LOs, re-sign the remaining stores as Food Lion, and develop a clear strategy designed to increase sales in existing Food Lion stores, which means preventing Wal-Mart, Harris Teeter and Publix from further penetration of its market share.

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Gene Hoffman, President/CEO, Corporate Strategies International

Regarding some of the comments above on closures...why would they purchase stores in a bankruptcy to close them outside of bankruptcy? Doesn't make sense, since bankruptcy offers you the benefit of renouncing leases. If you look at the market share, Delhaize may already operate in most of BI-LO's markets, but the acquisition fortifies these as well as giving it a top spot in areas such as Augusta, Chattanooga, Charlotte, and Charleston. P.S., this is far from a done deal, as owner Lone Star capital may still be interested in a reorg.

'mikeb22'

Food Lion needs to examine the location of the existing BI-LO stores to see if they make sense as FL locations. If so, they should sell off the existing merchandise and convert these stores. The other stores should be sold for the cash value of their real estate and merchandise. BI-LO does not offer a winning business proposition. They were in Chapter 11 for a reason!

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Kai Clarke, President, Kowa Optimed, Inc.

I am a Food Lion employee and I have a question for the group. When acquisitions like the one proposed take place, what is the risk of employees of the acquiring company being downsized when consolidations of stores take place? I thank you for any answers you may have to offer.

'gotigers'

Gotigers, your risk would be higher on a friendly takeover where your management wanted to show team building. Your risk is smaller now. However, you should ask yourself "Is there a flaw in my job performance that puts me at risk?"

Correct that! In any case, your best bet is to put your nose to the grindstone and worry about doing your job, not about keeping it.

'DrCellmor'

First, Gotigers, I can understand your question. Based on history, I would assume it has less to do with worry about your job performance and more to do with the fact it has happened in the past.

It wasn't that long ago that many members of the Food Lion management team lost their jobs to Hannaford Brothers' people both in Salisbury as well as in North Florida.

That having been said, it depends a lot on your position. Directors, VPs, and above would be more at risk than positions below them. Store operations at the DM and below is usually the least and last affected. I do agree that should this acquisition go through, it would be highly unlikely that FL people would be replaced by BI-LO people but some of the more talented BI-LO people may be absorbed into positions that are currently available or created through the acquisition.

'groceryconsult1'

Kai--I don't mean to sound argumentative but I think your comment regarding what FL should do with BI-LO assets as well as how they got into chapter 11 is a bit harsh and short sighted.

BI-LO was a market leader for some time prior to the Ahold acquisition--and didn't start to significantly turn downward until the Wal-Mart invasion. Many other retailers that struggled in various sectors were also affected and were even less successful with this competition.

I agree that under Ahold, and the past 2 CEOs, BI-LO's performance had been poor and getting worse. Partly because of the "bigger, better, expensive remodels = increased sales" philosophy, which Lone Star followed (a bit blindly) not knowing the industry and/or market well enough to challenge these decisions. Under the current management (Byars, Carney, Nasshan), the company is already showing great strides in comp store sales--and doing so profitably.

Based on Food Lion's response to BI-LO's recent everyday and promotional activity, as well as the disappointing performance of most of the remodeled Food Lion locations that are next to BI-LO's, I would say that the acquisition is not only about adding stores and but also about eliminating competition.

Why does the assumption have to be that BI-LO is being acquired due to (current) poor performance as opposed to double digit increases that make the competition sit up and take notice?

Example:

Food Lion
-- Stores in Columbia area: 24
-- Market share statewide: 13%

Bi-Lo
-- Stores in Columbia area: 16
-- Market share statewide: 16%

SOURCES: Store Web sites, The Shelby Report

'groceryconsult1'

This deal is far from being completed. It would not be a good move for a lot of reasons. Hundreds of people will lose their jobs. The corporate office would be wiped out along with many charities that BI-LO supports. Having Food Lion take over would hurt the community in many ways. I hope that the bid from Food Lion is rejected. There are other alternatives at this point that will hopefully be completed instead of Food Lion. Their sales aren't even close to BI-LO.

'smbc2004'

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