KKR IN DEAL TO ACQUIRE BRUNO'S FOR $1.2 BILLION

ELLIOT ZWIEBACH

BIRMINGHAM, Ala. -- Bruno's here has reached a definitive agreement to be acquired by Kohlberg Kravis Roberts & Co., the New York-based investment firm.

The purchase of Bruno's -- for cash and stock totaling about $1.2 billion -- would enable the 254-store chain to speed up expansion plans, according to observers.

The purchase price includes KKR's assumption of $220 million in debt and capitalized leases. The chain's board of directors will recommend the merger at a special shareholders meeting in July, and the deal is expected to close later that month.

KKR owns majority stakes in Safeway, Oakland, Calif.; Fred Meyer Inc., Portland, Ore., and Stop & Shop Cos., Boston. After the merger, KKR plans to take Bruno's private, as it has initially done with each of the other supermarket chains in which it has invested.

As a private company, observers told SN, Bruno's would be likely to invest heavily over the next few years in store expansion to fuel sales growth at the expense of earnings.

Ronald Bruno, chairman and chief executive officer, said, "We believe these plans are in the best interests of our company and our shareholders. "As our industry continues to experience consolidation, this merger provides Bruno's with the resources and backing to pursue its successful business strategy with more flexibility and greater potential for future growth." Bruno, 43, would continue to serve as chairman for at least three years after the merger but would give up the title of chief executive officer as soon as KKR selects a successor. Observers said the new CEO may not have a background as a supermarket operator but he is likely to come from a management background and to focus on operations -- similar to Steve Burd, president and CEO of Safeway, who joined the chain as a management consultant. At least two other members of senior management are planning to retire after the deal is completed, though Bruno's officials declined to name them. Bruno's operates stores in Alabama, Georgia, Mississippi, Florida, South Carolina and Tennessee under a variety of names. Sales for the year ended in July 1994 fell 1.4% to $2.83 billion, compared with $2.87 billion in 1993, while earnings fell 20.5% to $37.3 million, compared with $46.9 million a year earlier. Steve Huffines, a securities analyst with Sterne Agee & Leach, Atlanta, told SN he is uncertain whether KKR would sell off assets or seek additional acquisitions. "Selling assets is one option management has to explore -- possibly selling the Piggly Wiggly Southern stores in south Georgia, which are typically smaller units operating in smaller towns than most Bruno's stores," he said.

"Another option would be getting out of Atlanta, a huge market where Bruno's has only a small presence. Or KKR could acquire a smaller chain within Bruno's operating region." Debra Levin, an analyst with Morgan Stanley, New York, said she doubts KKR would sell off many Bruno's assets.

"In fact, KKR is more likely to seek an acquisition of some other chain in the Southeast to benefit from further consolidation," Levin told SN. Bruno's has been the subject of industry speculation for several months, with observers anticipating a sale to another retailer.