Big Mergers Seen as Unlikely

NEW YORK — Despite the surprise announcement last month that Bi-Lo was making an offer to take Winn-Dixie private, analysts said they did not expect the pace of large-scale mergers and acquisitions to pick up in 2012.

“We do not see this as a sign of increased, value-enhancing [merger and acquisition] activity across the sector,” said John Heinbockel, an analyst with Guggenheim Securities, New York, in a report.

Although he said some conditions are ripe for mergers in the supermarket sector — low interest rates and strong free cash flow, for example — for the most part potential strategic acquirers are focused on internal operating initiatives to drive sales growth.

“Merger integration activities would represent, for most, an unwelcome distraction,” he said.
In addition, he said companies can make better use of their cash by repurchasing their own stock.

He said more acquisition activity by private equity firms also appears unlikely, given that it might be difficult for them to see an eventual return on their investment in an unpredictable environment.

Minneapolis-based Supervalu, long the subject of takeover talk, was included in a fresh round of speculation among financial bloggers in the wake of the Winn-Dixie merger, but analysts were not all convinced of that company’s prospects as an acquisition target, despite its lagging share price.

“The already-leveraged balance sheet and the limited value of a number of its businesses would likely curtail the scope of any activity,” Heinbockel said, although he noted that some parts of the company, such as Save-A-Lot, could be divested.

Others pointed out that Winn-Dixie has long been a prime acquisition target, but no buyers ever emerged until Bi-Lo reached out.

“If you are interested in Winn-Dixie, it has been sitting there looking you in the face for a long time,” said Tim Carroll of William Blair & Co., Chicago, which advised Bi-Lo on the merger.

Kroger Co., long seen as a potential buyer for Winn-Dixie, “would never acquire a turnaround in a new market,” noted Karen Short, an analyst with BMO Capital Markets.