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PENN TRAFFIC MULLS BI-LO, WHOLESALE ASSETS SALE

SYRACUSE, N.Y. -- Penn Traffic Co. here said last week it has hired an investment banking firm to determine the value of a group of its Pennsylvania-based Bi-Lo Foods stores and certain wholesale assets as a prelude to a possible sale.The assets being considered for disposition include most of the 78 Bi-Lo stores. It was unclear last week whether the prospective sale would also include some of the

SYRACUSE, N.Y. -- Penn Traffic Co. here said last week it has hired an investment banking firm to determine the value of a group of its Pennsylvania-based Bi-Lo Foods stores and certain wholesale assets as a prelude to a possible sale.

The assets being considered for disposition include most of the 78 Bi-Lo stores. It was unclear last week whether the prospective sale would also include some of the individual warehouses that service the Bi-Lo stores, nor was it clear whether the company is considering the sale of the 49 Riverside Markets it operates in Pennsylvania.

The company said that overall revenues from the stores and wholesale operations being evaluated were approximately $675 million in the last 12 months, of which approximately 80% was generated by supermarkets and 20% from wholesale and franchise customer relationships in Pennsylvania.

The company said it hopes to consummate a deal before the end of the year. Observers said Penn Traffic can anticipate a selling price of about $250 million.

The firm Penn Traffic hired to evaluate Bi-Lo is Goldman Sachs, New York, which Penn Traffic said "[will] undertake a process for realizing value" from the stores and related wholesale operations.

A company official said Penn Traffic has not yet determined how many stores might be sold, "but we're trying to be very proactive in letting people know we're exploring the best way to improve our financial results, and that's why we hired Goldman Sachs."

Bi-Lo is a price-oriented superstore format whose 78 stores range from 30,000 to 80,000 square feet.

The company's wholesale operation, based in DuBois, Pa., is Penn Traffic Wholesale, a longtime distributor that predated the formation of Penn Traffic Co. It serves 106 licensed franchises and 90 independent retailers, mostly in Pennsylvania and Ohio.

Gary D. Hirsch, Penn Traffic chairman, said last week prospective buyers have already expressed interest in some Bi-Lo locations, "[and] we made this decision [to evaluate a sale] in part as a result of certain inquiries to the company over the past few months. This decision is also consistent with our long-standing policy of maintaining substantial longterm financial flexibility."

Ted Bernstein, a high-yield analyst with Grantchester Securities, New York, said Penn Traffic's decision to sell some assets "is not tremendously surprising, and it indicates they are concerned about the time horizon they face to turn things around and are looking for a way to buy more time and secure additional liquidity."

Bernstein said any asset sale would enhance the company's liquidity, "but it will not result in deleveraging because I believe Penn Traffic's debt relative to cash flow will be higher subsequent to the transaction."

The announcement of the hiring of Goldman Sachs was made late last week, shortly after Penn Traffic released financial results for the first quarter ended May 2.

The company said sales in the 13-week quarter fell 5.6% to $716.8 million, while same-store sales dropped 4.1%. However, for the four weeks ended May 30, same-store sales declined 2.5%, the company pointed out.

Cash flow for the quarter fell 22.1% to $30.1 million, compared with $38.7 million a year ago, and the company reported a net loss of $17.1 million, compared with a net loss of $22.8 million a year ago.