SALE COULD SIGNAL MCLANE EXPANSION

David Ghitelman

TEMPLE, Texas -- The sale of McLane Co. here, a wholly owned subsidiary of Wal-Mart Stores, Bentonville, Ark., to Berkshire Hathaway, Omaha, Neb., the holding company chaired by Warren Buffett, has led industry observers to wonder if McLane's new owner plans to expand the company, which distributes food and nonfood items to convenience stores, drug stores, wholesale clubs and others.

Chuck Cerankosky, an equity analyst at McDonald Investments, Cleveland, told SN that Berkshire Hathaway could be able to help McLane "build its topline." He added that, under Wal-Mart, McLane may have been limited in growing its topline.

An expanding McLane could be yet another threat to Fleming, Dallas, which filed for a Chapter 11 bankruptcy reorganization in April, Cerankosky said.

"There may have been informed speculation by the buyer that he might be able to grow McLane faster than they would have been able to do before the Fleming bankruptcy," he said.

Wal-Mart said it made the sale to enable it to focus better on its core retail operations.

Jason Whitmer, a research analyst at Midwest Research, Cleveland, said that probably was the reason for the sale. "Distribution is not their core competency," he said. "Retail is where they want to put more of their emphasis."

David Rogers, president, DSR Marketing System, Deerfield, Ill., a retail consultancy, observed that Wal-Mart may be getting out of the convenience store industry while the going is good.

"I think the convenience store industry is in for some very hard times," he said. "With a small number of exceptions, they really can't execute prepared foods very well.

"And the pressure on gasoline margins along with the pressure on tobacco sales from rising taxes are really hurting them."

Wal-Mart, when it bought McLane in 1990, had yet to open a single superstore, and Rogers noted, "I think they bought McLane to gain expertise in grocery distribution, but the need for that is long past. Wal-Mart probably said we've learned all we can from McLane so let's move on."

McLane said its current management team would remain in place after the sale, which is expected to close by the end of June, with business operations continuing as usual and the company continuing to be based here.

Wal-Mart said McLane had trade sales of $14.9 billion in fiscal 2003 as well as sales of $7.2 billion from Wal-Mart Stores and Sam's Clubs.

Wal-Mart also said it has signed of letter of intent to sell Merit Distribution Services, a subsidiary of McLane, to Swift Transportation, Phoenix.

Wal-Mart said the proceeds from the McLane and Merit sales will total approximately $1.5 billion and, excluding a one-time gain, will lower the company's earnings approximately 1 cent per share in fiscal 2004 and approximately 2 cents per share in fiscal 2005.