KASH N' KARRY IS NOT FOR SALE: CHAIRMAN

ELLIOT ZWIEBACH

TAMPA, Fla. -- Despite canceled talks about possibly being acquired by Food Lion, Kash n' Karry Food Stores here is not up for sale, Ronald E. Johnson, chairman, president and chief executive officer, told SN last week.

However, in the next year or two, the 100-store Western Florida chain's institutional shareholders might opt to retrieve their equity through a possible sale or a financial restructuring that could involve a public offering, Johnson said.

Speculation arose that Kash n' Karry was on the selling block after the company said on Aug. 9 it had terminated several weeks of talks with Food Lion, Salisbury, N.C., about a possible buyout. Johnson firmly denied that Kash n' Karry was in play.

"Kash n' Karry was not for sale before we were approached by Food Lion. We were not interested in shopping the company prior to that approach, and we categorically are not in the market today shopping the company. And our board is very adamant on that point," Johnson told SN.

"However, when Food Lion approached us, the board and I felt we had a real fiduciary responsibility to look at the opportunity, and we did," he explained. "But we weren't able to work it out, so we're now back to running our business according to our strategic business plan. However, we have a lot of work to do remodeling or expanding our stores, and only a limited capital expenditures budget to do it based on our debt load.

"So if other options do become available along the way, they will have to be looked at. But we're not actively pursuing putting the company in play or selling it."

Johnson noted that, at some point, the institutional investors that own most of Kash n' Karry's stock -- American Express/IDS, Paine Webber, Prudential and Leonard Green & Partners -- may decide to pursue various options to get their investments out, which could involve a sale or a restructuring of the debt, including a public offering. But any such possibilities are not likely in the near future, he said.

"All of our investors have made a long-term commitment to stay with Kash n' Karry, and they're not pressing management at all," Johnson said.

"But being equity owners is not what these groups are all about, and if something presents itself in the next year or two that puts them in a position to be able to cash in on their investments, they might very well take it, though they're not in any hurry to do so." Securities analysts reached by SN last week had varying interpretations of Kash n' Karry and Food Lion's terminated talks.

Ken Bann of Lehman Bros., New York, said he doubted Kash n' Karry is up for sale, despite being approached by Food Lion. But Ted Bernstein of Grantchester Securities, New York, disagreed.

"It's clear the company is hoping to find a buyer, and it certainly makes sense for them to sell, since they still have significant leverage," Bernstein said. "Kash n' Karry has had pretty solid results since it emerged from Chapter 11, and it could probably resist being acquired for a time. But it faces formidable competition from major regional and national chains with much deeper pockets who are able to spend money more readily on new stores, remodels and promotions."

Another analyst told SN Kash n' Karry has been "perennially for sale, although I'm not sure how much effort they put into it." Jonathan Ziegler, an analyst with the San Francisco office of Salomon Bros., New York, said, "The fact that Food Lion is on the prowl for acquisitions is a good sign because the industry has to consolidate."

Kash n' Karry is just like other regional chains operating in a critical marketplace, Johnson noted. "We are not for sale, but we know there are large chains looking at strategically positioning themselves in certain markets where it is not feasible to enter with additional square footage, but where acquisitions of regional chains represent a good opportunity."

He dismissed reports that other companies have expressed an interest in buying Kash n' Karry. "I've heard that Bruno's or Kroger was interested in buying us, but we have not been approached by either one or by anyone else," he said.

Kash n' Karry was approached by Food Lion three and a half months ago, Johnson said. He declined to discuss why talks of a possible deal were terminated. "I don't think it benefits Food Lion or Kash n' Karry to discuss that," he said.

Food Lion declined to comment on its talks with Kash n' Karry, other than to issue a statement that did not name the chain. "It has long been our strategy -- and it continues to be our strategy -- to seek to build value for our shareholders through a combination of internal and external growth," Food Lion said.

"Consistent with that objective, we have entered into discussions from time to time with various parties about possible transactions, and we expect to continue to do so. If and when such discussions lead to an agreement that it is appropriate to publicly disclose, we will do so in an appropriate and timely manner."

For the year ended Aug. 1, Kash n' Karry's estimated sales were $1.2 billion vs. $1.26 billion a year ago. Overall same-store sales for the year were negative, but comparable sales at 37 stores upgraded to include some or all of the chain's "Destination for Fresh" mix of expanded perishables and enhanced service showed gains, Johnson told SN.