NASH FINCH BUYS TWO ROUNDY'S DCS

Mark Hamstra

MINNEAPOLIS -- Nash Finch here said last week it has agreed to acquire two Midwest distribution centers and their associated wholesale business from Roundy's, Milwaukee, for about $225 million.

The purchase also includes two retail stores in Ohio.

The two distribution centers, located in Westville, Ind., and Lima, Ohio, together serve more than 500 customers and generate about $1 billion in annual sales, according to Nash Finch.

"We have long admired the outstanding customers and dedicated associates of these divisions, and are excited for them to join our organization," said Ron Marshall, chief executive officer, Nash Finch, in a prepared release.

In an interview with SN last month, Marshall had told SN he felt his company was well positioned to make acquisitions in the grocery wholesaling business.

"We think there is a profound business opportunity within this sector for consolidation, and we think we can be a consolidator," he said.

Nash Finch said the two distribution centers targeted for acquisition "fit well with the company's existing network," and added that "no facility closures are anticipated." It plans to retain all 950 employees at the two locations. The wholesaler already has two distribution centers in Ohio: a 706,600-square-foot facility in Bellefontaine, and a 403,300-square-foot operation in Cincinnati, plus a 604,500-square-foot facility in Bridgeport, Mich.

Nash Finch said it expected the two new centers would drive productivity improvements and buying efficiencies.

"Specific examples of productivity improvement include the better balancing of transportation across the company's distribution network to reduce miles and equipment, enhanced warehouse capacity utilization, and the reduction of outside storage space," the company said.

Chuck Cerankosky, an analyst with KeyBanc Capital Markets, Cleveland, said the additional warehouse space could ease pressure on existing warehouses and create the opportunity to segregate warehouse space based on product volume.

"It could give them an opportunity to increase the radius of all their distribution centers now that they have a bigger geographic footprint," he said. "The beauty with modern IT is that you could, perhaps, create a multi-tiered distribution system within your geographic footprint and be that much more efficient."

Nash Finch said the purchase would be immediately accretive to earnings, and could drive operating earnings gains of $31 million to $33 million, and net of about $3 million, during the 12 months following the close of the transaction.

It was not clear how the company would finance the acquisition.

"Being that Nash Finch is public, they can look at a variety of options, including using their own stock, debt, cash on hand -- and can use them in combination," Cerankosky said.

For Roundy's, the sale further removes it from the lower Midwest after it shuttered two distribution centers in Evansville, Ind., and Eldorado, Ill., last year.

In a prepared statement, Robert Mariano, chairman and CEO, Roundy's, said the sale of the two warehouses announced last week "is consistent with our strategy of focusing on and growing our retail operations, and to concentrate on our independent distribution business in the Upper Midwest."

Roundy's continues to operate three distribution centers, all in Wisconsin.

David J. Livingston, a consultant based in Pewaukee, Wis., said Roundy's could become a dominant regional supermarket operator by consolidating independent stores in its core market.

"This gives Roundy's the cash to keep expanding in Wisconsin and perhaps continue improving the Rainbow stores in Minneapolis," he said.

The move also displaces another large group of Roundy's customers, some of whom had only recently transitioned from Fleming, the Dallas-based wholesaler that liquidated its supermarket-distribution business in 2003.

"We have been a customer of Roundy's and the Ohio distribution center for many years, and we will certainly miss the one-to-one style of business relationship that both companies had enjoyed," said Richard L. Riesbeck, president and CEO, Riesbeck Food Markets, St. Clairsville, Ohio. "At the same time, we are impressed by the Nash Finch organization, and they have assured us of their focused commitment to their retail customers -- both new and existing."