FOOD LION STARTS TO ROAR

DAVID GHITELMAN

SALISBURY, N.C. -- Food Lion here may have been looking to buy respect when it said in August it had worked out a deal to purchase Hannaford Bros., Scarborough, Maine, for $3.6 billion.

"For many years the markets have indicated Food Lion must show it would become one of the leaders and consolidators and not just a regional player," said Pierre-Oliver Beckers, chief executive officer of Delhaize, Food Lion's Belgium-based majority stockholder.

And the Hannaford purchase appears to be just one part of the company's effort to reinvent itself. Earlier this month, the company went so far as to create a new holding company with a new name, Delhaize America.

As part of this corporate restructuring, Food Lion's stock was delisted from the Nasdaq National Market System, and trading on Delhaize America shares began on the New York Stock Exchange.

Also, Bill McCanless, who had been Food Lion's president and CEO, became CEO of Delhaize America while remaining Food Lion's CEO. Beckers was named chairman of Delhaize America. And Joseph Hall, who had been Food Lion's senior vice president of operations and chief operating officer since 1995, became Food Lion's president. (Despite all this name changing, there are no plans to reflag any Food Lion stores with the Delhaize America banner or to reflag any Hannaford units as Food Lions.)

"These changes make for a stronger organization that we expect will increase long-term shareholder value and enhance our ability to serve our customers," said McCanless. "We expect our new corporate structure to promote greater flexibility in the daily operation of our different businesses. Delhaize America will serve as an umbrella under which our portfolio of different brands can flourish. As we continue to expand our market presence, our new structure will also position us to seamlessly integrate acquisitions."

Meanwhile, before Food Lion announced the Hannaford deal, pressure on Food Lion to make an acquisition, almost any acquisition, was mounting, said industry analysts. "I think Food Lion is the company that has to do an acquisition, and they're clearly champing at the bit to do something soon," said Ed Comeau, equity analyst at Donaldson, Lufkin & Jenrette, New York, shortly before the Hannaford deal was announced. "They're in the eighth inning -- and I think they realize it -- in the acquisition game."

Some analysts even saw Food Lion as a likely acquisition target. "Food Lion would be a logical acquisition candidate for Wal-Mart," said Gary Giblen, New York-based managing director of Banc of America Montgomery Securities, San Francisco. "It would fill in the geography Wal-Mart has very openly said they want to achieve in Europe."

When Food Lion did make its acquisition move, some analysts expressed reservations. Many in the investment community considered Food Lion's offering price much too high.

"The market didn't like the purchase of Hannaford because it was expensive," said Meredith Adler, equity analyst at Lehman Bros., New York. "There is nothing wrong with Hannaford as a company or as an acquisition, only the price."

Jack Russo, equity analyst for A.G. Edwards & Sons, St. Louis, said, "In the long term, it's a good transaction for them. They bought a good company, but they paid a lot. The market is feeling they overpaid."

Delhaize America said it expects the Hannaford deal, which it expects will close between February and May, will pay for itself. The company projects synergies of $40 million in the merger's first year and $75 million annually by the third year.

"The synergies can pay for the transaction," said McCanless. "Investor relations and treasury functions will become common.

"We'll be able to combine the procurement side of the business to match up, in particular, the Top 10 manufacturers to both companies," he added.

And analysts, if not the stock market, said Food Lion has performed impressively in the recent past. "Food Lion has done an extraordinary job of repelling entrance into the Southeast," said Giblen. "Winn-Dixie has given up on low-price leadership after going after Food Lion on that basis."

Looking to the future, Delhaize America has said it plans to add another 85 supermarkets to the company as well as remodel or expand another 150 stores in 2000. The expansion plan is independent of the pending Hannaford acquisition. The company has said it expects to open 94 stores and remodel 140 in 1999.

The planned new stores and expansion in 2000 will increase the company's total square footage by 8% or 3.3 million square feet. Delhaize America said it expects to spend approximately $390 million on these capital expenditures.

Delhaize america * Hannaford Bros.

NAME: Delhaize America

HEADQUARTERS:

Salisbury, N.C.

ACQUISITION DATE: Pending

COMBINED VOLUME: $13.5 billion

TOP EXECUTIVE: Bill McCanless, chief executive officer