JITNEY OPENS TENDER FOR DELCHAMPS STOCK

ELLIOT ZWIEBACH

JACKSON, Miss. -- Jitney Jungle Stores of America here said last week it has started its tender offer to pay $30 per share for all outstanding common stock of Delchamps, Mobile, Ala.

However, two potential stumbling blocks to the ultimate completion of the deal must be resolved:

Dealing with objections to the offer by an outside investment group, which owns 5.7% of Delchamps stock and which said it believes the $30 selling price may be too low.

Convincing Jitney bondholders to waive certain covenants before the deal can be completed.

Michael E. Julian, Jitney's president and chief executive officer, told SN last week, "I am confident that $30 is a fair price, and if anyone out there wants to pay more, they can still do it."

He said Jitney needs two-thirds of Delchamps' shareholders to tender their stock for the deal to proceed, "so objections by the owners of less than 6% of the stock will not block the deal."

Regarding bondholders, Julian said he does not anticipate any problems negotiating with them. "This is a good deal, and we think bondholders will agree and give us their consent," he said.

Securities analysts also told SN they do not anticipate either situation is likely to stop the deal from being completed.

Jitney disclosed an agreement July 8 to acquire the Alabama-based chain. Under terms of that agreement, Jitney formed a subsidiary called Delta Acquisition Corp. to begin the tender offer.

Reservations concerning the offer surfaced last week in a filing with the Securities and Exchange Commission by Franklin Resources Inc., San Mateo, Calif., a diversified financial services holding company that owns 405,679 shares of Delchamps through a subsidiary, Franklin Mutual Advisers Inc.

According to the SEC filing, FMAI said it believes "that the proposed price of $30 per share fails to adequately reflect the value of [Delchamps'] business. FMAI may communicate its views to [Delchamps] management, its board of directors and other shareholders."

Analysts noted that the closing price of Delchamps stock the day before the transaction was disclosed was $32.25 per share -- "although it was obviously up because news of negotiations had leaked out -- so it's not surprising that some shareholders might object to the $30 tender offer," Ted Bernstein, a high-yield analyst with Grantchester Securities, New York, told SN.

Another high-yield analyst, who asked not to be named, said the $30 price "may not be at the highest end of the range, but it is a fairly full price based on how Delchamps has performed. And no one offered a higher price in a full-scale auction because, obviously, if Delchamps had gotten a higher offer, it would have taken it."

The analysts said holders of Jitney's $200 million worth of 12% bonds have created an informal group to negotiate a consent payment with Jitney, although both said they expect Jitney ultimately to reach some accord with the bondholders.

"It's their right to be paid for incurring the risks," one analyst told SN. "The bonds don't permit Jitney to acquire a company the size of Delchamps without a waiver, so the bondholders have the upper hand, and they can make it very difficult for Jitney if they choose."

Bernstein said the amount of payment must be negotiated. "Right now the bondholders have veto power over the Delchamps deal, but it's certainly in their interest to see Jitney acquire Delchamps because, whatever problems Delchamps may have, the deal will give Jitney much broader geographic diversification."