DELCHAMPS EXECUTIVES SAY CHAIN IS UP FOR SALE

GREG GATTUSO

MOBILE, Ala. -- Executives at Delchamps here have confirmed that the Southeastern supermarket chain is up for sale.

David Morrow, the company's chairman and chief executive officer, said last week that Delchamps' board has engaged Credit Suisse First Boston, New York, to help find a buyer. Morrow said the firm has identified "a limited number of potential buyers who have expressed an interest in purchasing the company at prices that are in the range of recent trading values."

Although no suitor has stepped forward, observers say the chain could appeal to any number of entities, including noncompeting chains seeking a foothold in the Southeast, neighboring chains looking to broaden their reach, competitors looking to knock out an opponent and leveraged finance groups looking to capitalize on Delchamps' market leadership here and in and other Southern markets.

Mario Gabelli, chief investment officer of Rye, N.Y.-based Gabelli Asset Management Co., said Monday's announcement was "a big bomb," and that retaining First Boston was tantamount to telling the firm, "go find me a buyer."

Gabelli said Delchamps' 7 million shares could fetch as much as $45 or $55 each, making an acquisition, were it to happen, worth anywhere from $315 million to $385 million.

On the day of the announcement, Delchamps stock gained 1 1/4, or 4.1%, to $32 after opening at $30.75. Shares closed last Thursday at $31.875

Gabelli, whose company manages $12 billion worth of equities, said his clients own about 14% of the chain.

"I'm delighted for my clients," he told SN. "Let the auction begin."

However, others view an acquisition of Delchamps to be risky, given the heightened competitive climate in Delchamps' key markets.

Gary Giblen, managing director at Smith Barney, New York, said in his weekly fax to investors that competition in the Southeast has reached "intense and irrational levels." "We still don't see a Delchamps buyout as logical at even the current share price, much less a premium," Giblen said in the bulletin. He was not available for further comment. Delchamps, which operates 118 supermarkets in Louisiana, Mississippi, Alabama and Florida, and 10 liquor stores in Florida, is facing increased competition from Food World and Food Fair, both supplied by Bruno's, Birmingham, Ala., and Winn-Dixie, Jacksonville, Fla., which is engaged in an aggressive plan to upgrade its stores.

For the 39 weeks ended March 29, sales fell less than 1% to $836.1 million. Net income rose from $1.2 million to $3.1 million, due to improved gross margins obtained through increased levels of buying allowances from vendors, the company said.

The chain is also feeling pressure from Wal-Mart supercenters, said Meredith Adler, equities analyst at Lehman Bros., New York.

"I believe Wal-Mart has had some impact, especially where Delchamps stores are small and unable to offer the selection or quality that would allow them to compete effectively," she said.

In late 1986, Delchamps rejected two unsolicited merger proposals -- one from Bruno's, and one from A&P, Montvale, N.J.

As SN reported at the time, both bids were rejected by Delchamps' board, which then banded together with a group of executives, managers and members of the Delchamps family to repurchase 500,000 of the company's 1 million common shares -- thereby gaining a majority of voting stock and protecting the chain from hostile takeover attempts.

Gabelli estimated Delchamps shareholders could have made a substantial profit had either offer been accepted.

Delchamps made the announcement after a press report quoted a source within the chain as saying there were no plans to sell the company. The identity of the individual who made that statement was not immediately known.

Morrow said the company has not reached an agreement with anyone and cautioned that there can be no assurance that the company will reach an agreement that is acceptable to the board.

Delchamps officials were not available for further comment. Credit Suisse First Boston declined to discuss the situation.