MARKS & SPENCER SEEKS KINGS BUYER

JAMES FALLON

LONDON -- Ahold N.V., Zaandam, The Netherlands, and Delhaize, Brussels, head the list of potential buyers for Marks & Spencer plc's Kings Super Markets subsidiary, West Caldwell, N.J.

Marks & Spencer last week put Kings on the selling block in order to focus on businesses that can be developed internationally. These include the U.S. apparel retailer Brooks Brothers, which Marks & Spencer is retaining.

The British retailer has appointed Morgan Stanley Dean Witter to find a buyer for the 25-store Kings chain. A Marks & Spencer spokesman said there is no time frame for the sale, but the company doesn't expect any difficulty in disposing of it.

The spokesman said that Marks & Spencer has in the past received a number of inquiries from other food retailers about whether Kings was for sale. Morgan Stanley Dean Witter now will re-contact these firms to see if they remain interested and also will contact others, he said.

But some food-retail analysts here said Kings' small size and checkered past performance might make it a hard sell. They also queried why Marks & Spencer announced plans to sell the chain without having a prospective buyer lined up.

"It's a strange situation, announcing it's for sale and then sitting back to wait and see what offers come in," said Ian MacDougall, food-retail analyst at London brokers Williams de Broe plc.

Most observers said the logical European candidates to buy Kings are Ahold and Delhaize, both of which remain eager to expand their existing U.S. operations. Ahold already operates in the New Jersey market through its Pathmark and Edwards subsidiaries. Meanwhile, Kings would be a good complement to Delhaize's existing operations in the United States, analysts said. Delhaize recently expanded these with the pending $3.6 billion purchase of Hannaford Bros., Scarborough, Maine, which moves the company into the Northeast.

Neither Ahold officials in Zaandam nor Delhaize executives in Brussels would comment on whether the chains are interested in Kings. However, the Ahold spokesman pointed to the company's existing presence in the New Jersey market and repeated the Dutch company's strategy of looking for large, stand-alone companies that could be acquired or "smaller, fill-in acquisitions."

Some analysts said J. Sainsbury plc here might take a look at Kings, but it's unlikely to buy the chain. Sainsbury's is struggling to regain its momentum in its core operations in the U.K., where it faces intense competition from Tesco plc and from Asda plc, which earlier this year was acquired by Wal-Mart Stores, Bentonville, Ark., for $10.8 billion.

And while Sainsbury's executives have said they are keen to expand their Shaw's subsidiary in the United States, they've stressed this would be through bolt-on acquisitions in markets near the New England area in which Shaw's already operates. New Jersey might be too far a stretch, analysts said, adding that was one of the reasons Sainsbury's gave for selling its stake in Giant Foods, Landover, Md., to Ahold. They pointed to Sainsbury's purchase of Star Markets in Boston as the kind of deal the company is likely to pursue in future.

"I would imagine most of Europe's food retailers will take a look at Kings," one analysts said. "And I would imagine that Marks & Spencer would be willing to accept any reasonable offer simply to get out of food retailing in America."

Kings last year had a 5.6% increase in operating profits to $16.1 million on a 6.3% rise in sales to $407.1 million. Analysts estimated the chain is unlikely to sell for the kind of multiples seen in Delhaize's purchase of Hannaford, which was bought for about one times Hannaford's sales, including debt. Observers expect Kings to sell for between 50% to 65% of sales, indicating a price of about $200 million to $265 million.

The decision to sell Kings comes despite strong words of support for the chain from senior Marks & Spencer executives only a few months ago. In May, Marks & Spencer's chief executive, Peter Salsbury, said the retailer planned to retain and develop both Kings and Brooks Brothers, New York, a retail clothing chain, despite numerous expressions of interest from prospective buyers.

"Brooks Brothers and Kings are both valuable businesses, and we are delighted so many people agree," Salsbury said at the time. "But we plan to develop them as part of our group."

But Marks & Spencer last week said a major review of its operations recognized that Kings did not fit in with the company's international strategy.

"Kings operates successfully in New Jersey and has potential for further growth and expansion in this region," it said in a statement. "However, the development of a regional food supermarket business in North America does not form part of Marks & Spencer's future plans."

Most analysts applauded Marks & Spencer's decision, saying it's much more important for the company to focus on turning around its struggling U.K. apparel and food retail operations than to run a small supermarket company in America. Marks & Spencer has developed the chain slowly over the last decade and never seemed to have a clear-cut strategy on what to do with it, they said.

"The question is why they bought it in the first place," said one analyst. "There are no scale advantages."

Marks & Spencer bought Kings in 1988 for $110 million at a time when it was keen to expand in the United States. The company's original plan was to use Kings as a platform to launch its successful prepared-meals formula in America. However, a lack of chilled warehousing and distribution facilities and the distances involved in the United States led Marks & Spencer to abandon its original plans. Instead, it focused on growing Kings organically.