SHAW'S SALE BOLSTERS HOPE FOR BRUNO'S, BI-LO 2004-04-12 (1)

Mark Hamstra

CHANTILLY, Va. -- Ahold USA here said it has received "strong interest" from potential buyers for the two supermarket chains it is seeking to sell by the end of this year.

The company said it distributed information last week on the financial performance of Bruno's, Birmingham, Ala., and Bi-Lo, Mauldin, S.C., to potential bidders, which include both strategic and financial buyers, Bill Grize, president and chief executive officer, Ahold USA, told SN.

"There's a fair amount to a lot of interest going on right now," he said. "I'm confident that we will be able to have a disposal process that is minimally disruptive to our people, and be a good value for shareholders and a good deal for those people who are looking at it."

The company also is using an Internet-based system to make financial information available to potential buyers, he said.

Analysts said the recent agreement by Albertsons, Boise, Idaho, to acquire Shaw's, West Bridgewater, Mass., indicates the climate for supermarket acquisitions might be becoming more favorable, and could be a good sign for Ahold's efforts to sell Bi-Lo and Bruno's as whole chains. Selling the banners together or as separate entities could be expected to earn Ahold more money than if it has to sell the chains off as groups of individual stores, analysts said.

"If you look at the multiples that were paid for Shaw's, in my opinion it brings comfort for what Ahold could receive for Bruno's and Bi-Lo," said Patrick Roquas, analyst, Kempen Securities, Amsterdam. "It confirms there is an appetite for those firms that have a No. 1 or No. 2 position in their markets, although Bi-Lo and Bruno's are much lower in terms of growth and operating margin than Shaw's."

Jens Jantzen, an analyst in the London office of Bear Stearns, agreed, adding, "Shaw's is probably better positioned geographically because the Northeast is a better market than the Southeast, but I do think it was an indication of appetite. I also think Ahold now has the potential for a better price."

Grize said the sale of Bruno's and Bi-Lo was necessitated by the company's need to pay down its debt load.

"In looking at all our alternatives, we would have loved to have kept everything," he said. "But as we looked at what we had, we saw that we weren't positioned right in Asia, so we're exiting there, we're exiting Latin America, and as we looked at Europe, we decided Spain was the least desirous place for us to be, and as we looked at the U.S., the Southeast was not the best place to be at this moment in time. It would, in effect, prevent us from investing the kind of monies that we would elect to invest in the Northeast."

Analysts previously estimated that Ahold could fetch anywhere from $640 million to $1.5 billion for the two chains. Potential buyers reported to be interested in one or both of the chains include Publix Super Markets, Jacksonville, Fla., and Kroger, Cincinnati.

Grize said the initial interest in the chain included "a couple of dozen" potential buyers, which he said included "some pretty serious players."

The goal in selling the two chains, as well as several of the company's overseas operations, is to reduce the company's debt to about $5.5 billion to $6 billion from its current level of $9 billion so it can obtain an investment-grade profile from the ratings agencies. To do that, Grize said, the company will need about $2.5 billion more in asset sales, plus some investment from free cash flow.

Bi-Lo, which was acquired by Ahold in 1977, operates 292 stores in five Southeastern states. It had 2003 sales of $3.2 billion. Bruno's, which was acquired in 2001, has 178 stores in four Southeastern states and generated about $1.78 billion in sales in 2003.