Bi-Lo for Sale

DALLAS -- Southeastern chain Bi-Lo is back on the market several years after breaking away from former parent company Ahold. Bi-Lo's current owner, private equity firm Lone Star Funds, said yesterday it intends to seek a buyer for the 230-store chain, which has come up short in many markets to the country's leading supermarket operator, Wal-Mart.

The announcement follows the news from several weeks ago that Bi-Lo's sister chain, Bruno's, has been spun off as a separate entity.

For the Bi-Lo deal, Merrill Lynch & Co. has been retained as the lead financial adviser, and William Blair & Co, LLC as the co-adviser, to assist in the strategic evaluation process.

No further developments will be released unless and until Lone Star's board of directors has approved a specific transaction, the company said in a statement.

However, it may be a while before Bi-Lo attracts a suitor with sincere interest and solid financial footing, industry watcher Burt Flickinger III, who is president of New York-based Strategic Retail Consulting, told Progressive Grocer yesterday.

"There's a high degree of difficultly involved in selling the chain on a bundled basis," he said. "There doesn't appear to be logical financial buyer. C&S Wholesale Grocery Co. would be a likely candidate, because if the Bi-Lo business were to go down the drain, C&S has all the distribution centers."

The solution that would make the most sense, according to Flickinger, is if Lone Star brought back former "superb" Bi-Lo c.e.o. Jon Wilken to reassemble the management team and do a leveraged buyout with financial underwriting by Lone Star.

If Bi-Lo were to be broken up and sold piecemeal, he noted, likely buyers for its stores would include Ruddick Corp.'s Harris Teeter banner, Kroger, and Food Lion. (Bi-Lo's store base covers four Southeastern states.)

Like other retailers in the competitive Southeast and Southwest markets, Bi-Lo has found its "stores under siege" by stronger players, said Flickinger. "You have Publix rolling north, Wegmans rolling south, and Lowes Foods and Harris Teeter expanding at a 360-degree basis. Bi-Lo has really been caught in the crossfire."

Flickinger lamented the removal of some of the former Bi-Lo/Bruno's management, which he called "some of the brightest and best" in the industry. "A reported problem that Lone Star had, and one that other companies have encountered, is that the people who really knew the Southern shopper base were largely pushed out by people who got off the bus from Boston. Also, the field leadership wasn't out in the stores to the extent that other leaders were. You can't drive the supermarket business from a desk."

One asset Lone Star may have, however, is the newly named president and c.e.o. of Bi-Lo, Brian Hotarek. "He's one of the consummate dealmakers, negotiators in the business," said Flickinger.

Hotarek, who was named to the post in February, formerly served as Ahold's c.f.o. He has served on Bi-Lo's board of directors since July 2006.

--Jenny McTaggart
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