SELLING HANNAFORD

David Merrefield

A news article on this week's front page outlines the proposed sale or closure of Hannaford Bros.' entire 51-store presence in the Southeast. The sales were arranged in a bid to win approval from the Federal Trade Commission for the $3.6 billion acquisition of Hannaford itself by Delhaize America.

This proposal is one that's fraught with strange and ironic outcomes, which we'll get to a little farther along. But first, let's look at what's happening in connection with Hannaford: Thirty-eight stores are to be sold in three lots, some to Kroger Co., some to Lowe's Foods and others to a Piggly Wiggly operator. And, effective this week, 13 stores are to be shuttered.

The impending spinoff of Hannaford's regional store presence wouldn't have happened in this way without the upcoming sale of Hannaford itself, and the sales are contingent upon the completion of the Delhaize-Hannaford transaction. But it's possible that even without present circumstances, Hannaford would have sought to extricate itself from the Southeast. By all accounts, Hannaford's leap from the Northeast to the Southeast was less than a howling success, and the regional operation was essentially profitless. Hannaford made its leap six years ago -- almost to this day -- by acquiring the then-20-unit Wilson's Supermarket chain for $120 million. Hannaford more than doubled the store count of the enterprise, and moved its volume from $200 million to $653 million, but learned the difficulties of operating in a region remote from its home territory. Ironically, Food Lion (predecessor company to Delhaize America) was learning much the same, and at about the same time, with its ambitious leap from the Southeast to the Southwest. That proved to be a major fiasco. Moreover, the fact that the FTC now requires the divestiture of Hannaford's Southeastern region strips from Delhaize America one of the advantages Hannaford presented -- a batch of stores in Delhaize America's own back yard -- and puts it back into the situation of operating in two dissimilar and widely separated regions. But the upcoming situation presents one difference: Food Lion's earlier regional jump was done without acquisition; these dynamics are different. Meanwhile, the situation also shows how different the acquisition climate was six years ago, and for the several years subsequent to that. At that time, there were just faint glimmerings that the era of retail consolidation would sprout, but it did and was festooned with numerous megadeals that dwarfed Hannaford's buyout of Wilson. The turgid pace of activity slowed only when the entire buyout market was largely sopped up, and, more important, as food retailers fell from favor with the equity markets, kicking the underpinnings of capital away. Indeed, the still-pending and ultra-rich deal between Delhaize America and Hannaford signaled the end of large-scale dealmaking. Clearly, no more deals will be done for quite a while at the multiples this proposal attracted.

Finally, it's curious to see that 13 Hannaford units are to be closed outright, evidentally for want of buyers. This implies that even in this buyers' market -- and let's face it, this was a fire sale -- buyers won't always surface. Does this bode poorly for Grand Union Co., Pathmark and Weis Markets?