DELHAIZE TAKEOVER PRICE MAY RISE: ANALYSTS

JON SPRINGER

SALISBURY, N.C. -- Delhaize America here is mulling last week's $2 billion takeover offer from its largest shareholder, Brussels-based Delhaize Group.

Delhaize Group, which operates more than 2,100 supermarkets in 11 countries, currently controls 45% of Delhaize America through ownership of Delhaize's Class A and B stock. Delhaize America is the parent of U.S. supermarket chains Food Lion, Kash n' Karry and Hannaford Bros.

The Belgium-based group said the offer would simplify the structure of the Delhaize Group and allow it to capitalize on growth opportunities in the U.S. and elsewhere. It would also generate around $20 million in synergies resulting from implementation of best practices.

Analysts told SN that while they felt the offer would not affect Delhaize America's operations greatly, U.S. shareholders would likely demand a better offer.

"We do think the offer will go up," Meredith Adler, an analyst for Lehman Brothers, New York, told SN.

Mark Husson, an analyst for Merrill Lynch, New York, also suggested that some U.S. investors would demand a cash alternative to American Depository Receipts (ADRs), or U.S.-based shares in a foreign company.

Delhaize Group proposed an exchange of 0.35 shares of Delhaize Group stock for each outstanding share of Delhaize America Class A and B stock not currently held by Delhaize Group. Using each company's trading price over the 20 days prior to the offer, it represents a 32% premium above Delhaize America's average blended price for both stock classes, Delhaize Group said, or about $20 per share.

Delhaize America Class B stock rose more than 14% to $18 late Thursday, the day of the announcement. It previously closed at $15.69. Delhaize A (non-voting) stock was up 13.6% to $18.06.

In a statement, Delhaize America said it has established a committee of independent directors to review the offer. The board last week also hired a legal advisor and was in the process of engaging a financial advisor. Bill McCanless, chief executive officer of Delhaize America, said in a statement that "everything remains business as usual" while the board examines the offer.

Husson said the Belgian group's offer comes as little surprise, considering Delhaize America was trading near 52-week lows and had become "an albatross around the neck" of Delhaize Belgium. Delhaize Belgium, he explained, is at the low end among European food retailers in price/earnings ratio, so its growth is restricted there.

"Because Delhaize Belgium's own share price is driven by what's happening in the States, it made it look like the tail was wagging the dog," Husson told SN last week. "This is a way to unify the tail and the dog."

Gary Giblen, director of research, CL King & Associates, New York, added that Delhaize America stock "wasn't going anywhere for a while," considering the debt it absorbed as a result of its recent $3.6 billion merger with Hannaford.

"When the stock price is near record lows, one option is to swoop in and buy it," Giblen told SN. "[Delhaize's Dutch-based] Ahold has traditionally made acquisitions while the price of its target company is near historical lows. This shouldn't have come out of the blue for anyone."

Delhaize Group bought a majority of Delhaize America's predecessor, Food Lion, in the mid 1970s. Delhaize America is a holding company formed a year ago to acquire Hannaford. The two companies remain separate entities, operating under a shareholders' agreement that ensures local day-to-day management of Delhaize America.