JITNEY JUNGLE ANNOUNCES IT WILL BUY DELCHAMPS

ELLIOT ZWIEBACH

JACKSON, Miss. -- Jitney Jungle Stores of America here said last week it has entered into a definitive agreement to acquire Delchamps, Mobile, Ala., for $30 per share, or close to $215 million.

The transaction, which analysts said could boost efficiencies and margins for the two regional operators, is expected to be completed some time after Labor Day.

The merger will result in a company of 223 stores in Alabama, Arkansas, Florida, Louisiana, Mississippi and Tennessee, with a combined volume of approximately $2.33 billion ($1.2 billion from 105 Jitney Jungle stores and $1.13 billion from 118 Delchamps units).

Delchamps will operate as a wholly owned subsidiary of Jitney Jungle, with the Delchamps name being retained on most of the stores, chain executives said. According to David W. Morrow, chairman and chief executive officer of Delchamps, "The combination of these two excellent regional supermarket chains will create a very strong competitor capable of meeting the increasing challenges of the intensely competitive market in the Gulf South region."

Michael E. Julian, president and chief executive officer of Jitney Jungle, said he expects the merger to provide "the opportunity to better serve customers by combining the employees, managers and resources of two leading retail companies and building one of the premier supermarket chains."

Jonathan Ziegler, a San Francisco-based securities analyst for Salomon Bros., New York, said the two companies make "a fabulous fit that allows two struggling regional players to improve themselves in terms of size and geographic diversity, which will make the whole market more efficient and be a positive for the operating numbers."

Debra Levin, an analyst with Morgan Stanley Dean Witter, New York, said the pending merger, "is further evidence that industry consolidation will continue, which is a good thing, because longer term, it should be beneficial to operating margins."

Chuck Cerankosky, a securities analyst with the Cleveland office of Tucker Anthony Inc., Boston, said the pending merger reflects the industry's ongoing consolidation "and the search for economies of scale that arise from such combinations."

He said the merger parallels the acquisition earlier this year of Riser Foods, Bedford Heights, Ohio, by Giant Eagle, Pittsburgh, "with a public company being acquired by a closely held company."

According to another observer, "Delchamps has experienced declining same-store sales and operating margin erosion due to increased competition from Albertson's and Winn-Dixie, as well as supercenters, and the task of integrating the companies and improving the lagging Delchamps operation will be a challenge to Jitney's management." Julian said Jitney will retain the Delchamps name on all Delchamps locations in Alabama and Mississippi, "where we generally operate in different parts of the state. And in Florida, we operate only two stores, and one is a warehouse store, so we will convert the other one to the Delchamps name.

"The only significant proximity issues arise along the Gulf Coast in Mississippi, where we are about evenly split. We haven't made any decision yet, but we will operate those stores under only one name, not both.

"And with nine Jitneys and 14 Delchamps in the coastal area, that's probably the only area where we may have to divest some units."

Few store-level employees are likely to be affected if the merger goes through, Julian added, though no decisions have been made about management-level personnel.

"But while there certainly will be some reorganization of the management structure of both companies and some natural fallout, I've always said you can never have too many good people. So some people may change job functions or responsibilities, but my experience has been to retain as many people as you can," Julian told SN.

Delchamps' top management team includes Morrow; Richard La Trace, president; Tim Kullman, chief financial officer; Frank Bennen, senior vice president of retail operations; and Tom Robbins, senior vice president for merchandising.

Morrow, who left retirement to take over Delchamps in April 1995, told SN he plans to retire again once the merger with Jitney is completed.

The cash price of $30 per share that Delchamps shareholders will receive from Jitney Jungle is "an excellent number" for shareholders, Morrow said.

"The stock has been priced around $20 for the last five years, and as we looked ahead -- given the competitive situation for supermarkets in general and for Delchamps in particular -- we didn't see our stock price rising to $30, based on projected earnings," he said. In addition, ever since Delchamps hired a financial investor to explore alternatives in March, "there were only a limited number of interested buyers," Morrow acknowledged. The price Jitney is paying for Delchamps is within the range of 7.1 times current year cash flow, "which is in line with other recent valuations of retail-food acquisitions," Cerankosky pointed out, noting, however, that the price is at the lower end of that range. "Obviously Jitney knows what it's getting, given Delchamps' slow sales trend," he said. Delchamps' board of directors has approved the merger and recommended that the chain's stockholders tender their shares. Jitney said it has obtained commitment letters from financial institutions to provide senior bank and subordinated debt financing to fund a tender offer and the merger.

Once the tender offer has been completed, Jitney said it will acquire any additional shares for the same price through a merger of Delchamps with a wholly owned Jitney subsidiary. The offer is conditioned on at least two-thirds of Delchamps' outstanding shares being tendered within 20 days after the tender begins, although that time frame may be extended for 60 to 90 calendar days to give Jitney time to arrange permanent financing beyond the bridge financing it has obtained.

Jitney operates 105 supermarkets -- including 77 conventional Jitney Jungle stores, 21 discount stores called either Sack and Save or Megamarkets and seven combination stores called Jitney Premier -- and 53 gasoline stations in Mississippi, Arkansas, Alabama, Florida, Louisiana and Tennessee.

Delchamps has 118 supermarkets in Alabama, Florida, Louisiana and Mississipi and 10 liquor stores in Florida. Besides publicly held shares, its ownership includes an employee stock option plan that controls approximately 16% of the stock; an investment group in Rye, N.Y., that controls approximately 13%; and the Delchamps family, which owns about 10%.