RICHFOOD IN PACT TO BUY FROZENS DISTRIBUTOR

MARK TOSH

MECHANICSVILLE, Va. -- Richfood Holdings here last week said it has agreed to acquire Rotelle Inc., a Philadelphia-area frozen food distributor, for $52.8 million cash.

Rotelle, based in West Point, Pa., is one of the nation's leading frozen food distributors with annual sales of about $340 million. It supplies supermarkets in eastern Pennsylvania, New Jersey, Delaware and, to a lesser extent, in Maryland and New York.

The acquisition, which is expected to close by Sept. 16, would add more than 25% to Richfood's annual sales volume of $1.3 billion. Richfood also would assume some debt and working-capital related liabilities, such as accounts payable, totaling about $26 million, the wholesaler said.

Rotelle's supermarket customers include Acme Markets, Malvern, Pa.; Genuardi Super Markets, Norristown, Pa.; Clemens Markets, Kulpsville, Pa., and some independents supplied by Fleming Cos., Oklahoma City. Acme, a division of American Stores, Salt Lake City, is Rotelle's largest customer and has worked with the distributor for more than 21 years.

Frozen food, ice cream, frozen bakery goods and ice account for an estimated $290 million of Rotelle's sales volume. It operates 6.3-million cubic feet of freezers, which can handle "quite a bit" of future growth, Richfood said.

The food-service division, which sells items such as meat, produce and seafood to institutional customers, accounts for the balance of Rotelle's business.

Donald D. Bennett, president and chief executive officer of Richfood, said in a statement the acquisition is a major achievement for Richfood. "This acquisition clearly meets the strategic criteria we established some time ago: a well-run, established wholesale operation with state-of-the-art facilities, capacity for growth and location in an attractive market adjacent to our current operations," he said.

John E. Stokely, Richfood's executive vice president of finance and administration, told SN the deal is the "ideal scenario," with Rotelle operating in a market adjacent to Richfood's but with a small bit of overlap. "That way, we can start to work the synergies out between these two companies," he said.

Richfood's distribution business, with 750 retail stores, is centered in Virginia, North Carolina and Maryland. It does not supply stores in New Jersey, New York or Pennsylvania.

Asked if the Rotelle deal would deter Richfood from future acquisitions, Stokely said, "Absolutely not."

He added, "We're going to continue to look for [acquisition] opportunities that are appropriate for our business. And we do believe that there are more opportunities out there."

Stokely estimated that the acquisition would add to earnings this year, but there are transitional issues to work out and he declined to estimate the net gain.

John F. Rotelle, president of the family-owned distributor, and Alfred F. Rotelle, president of the food-service division, would remain with the company in their current positions, Richfood said. Rotelle would operate as an independent subsidiary of Richfood Holdings, which is acquiring all of Rotelle's stock.

"We have been seeking a strategic alliance with another wholesaler that will aid us in better serving our existing customers as well as assist us in the growth of our business," John F. Rotelle said. "Richfood clearly is such a partner."

H.B. Thomson 3rd, a securities analyst at Wheat First Butcher Singer, Richmond, Va., said the deal is "an interesting strategic move" for Richfood. Rotelle operates in a contiguous market, the frozen-foods business is doing well and there could be synergies, cross-selling or backhaul opportunities that develop, he said.

"Richfood really wanted this for the frozen-food business," Thomson said. The deal does, however, give Richfood "a window" to look at the food service business.

"They don't have any food service business now and it's not something they have identified as a strategic area of growth," he said of Richfood. "But with this business that Rotelle has, which is about $50 million in revenues, maybe they will find something there that they like."

Lee Wilder, a securities analyst at Robinson-Humphrey Co., Atlanta, said Rotelle would make "a nice fit with the corporate culture" of Richfood.

"You have a family that is motivated to sell the business and keep it going," she said. "It obviously meshes beautifully with Richfood in terms of geography and capability."

Wilder said the long-term potential of the acquisition for Richfood is fairly significant. There likely are fewer operational issues -- and a larger sales base -- than Richfood took on with its January 1993 purchase of the civilian grocery distribution operations of B. Green & Co., Baltimore.

With the addition of Rotelle, which is profitable, Richfood would have opportunities to "pull costs out of the combined operation" and increase the profit levels of both businesses, she said.

Richfood also is "intrigued" by Rotelle's case-ready meat operations, Thompson said. Acquisitions -- such as the Rotelle deal and the $55 million B. Green purchase -- are a major part of Richfood's strategy and future incremental increases to its business are likely, he added.