DELHAIZE'S BIG CHANGE

David Merrefield

In the current business environment, the proposed buyout of Hannaford Bros. by Food Lion for $3.35 billion doesn't seem to be much out of the ordinary, except maybe for the multiple paid.

But it is. The deal actually has a number of engaging features, all of which cast light on Delhaize Le Lion, the company which controls Food Lion. Generally, it shows that Delhaize's newly found intention to join the acquisition club is becoming reality, and that it's positioning itself to do further deals.

Those considerations alone represent quite a change. After all, Delhaize -- founded in Brussels in 1867 -- hasn't really been much of an acquirer in this country, at least not a very bold one. Let's study a little history. Delhaize tiptoed into the United States in 1974 by buying a 34% position in Food Lion (then called Food Town) for about $8.2 million. At the time, the retailer consisted of 22 stores with a top line of about $92.5 million. Two years later, by which time Food Lion had about doubled in size, Delhaize plowed in another $11 million to acquire a majority of Food Lion's voting stock. But, in actuality, during most of its protracted period of Food Lion ownership, Delhaize, for various reasons, didn't exercise much control over Food Lion.

The only other ownership venture Delhaize tried in America came in 1979 when Delhaize bought Alterman Bros., Atlanta, a wholesaler and operator of Food Giant stores. That acquisition didn't fare any too well and Delhaize divested the company to Supervalu in1986. But a remnant remains: Delhaize still has an interest in a few Cub Food Stores in that market.

And that's it. Prior to a few days ago, Delhaize never again contracted to buy anything else in the United States. And, perhaps for most of its time of Food Lion ownership it never really had to do much else since Food Lion's share value rose astronomically and now comprises most of the value of Delhaize itself. More recently, though, Food Lion's equity value has eroded quite a bit, and per-share values strayed into single-digit territory. So change was mandated.

Earlier this year there was a management shakeup at Food Lion and a Delhaize officer was installed as Food Lion's chairman. Acquisition talk grew, as did share values, which were also pumped by a Delhaize buyback initiative.

Enter Hannaford: Beyond the evident advantages of the deal, such as expansion into new territory, the transaction offers impetus for Delhaize to financially restructure its U.S. holdings. Food Lion's stock, now listed on Nasdaq, will be delisted next month and replaced by that of a holding company, Delhaize America, to be on the Big Board. That stock will also reverse-split on a three-for-one basis, yielding a share price of maybe near $30, if last week's swoon in Food Lion's stock is temporary.

The new financial strategy should enhance Delhaize's equity, and its ability to do more deals. Incidentally, Delhaize now will be structured in a way that mirrors how Ahold, the much-acquiring Dutch food retailer, has long been organized in this country.