Winn-Dixie Explains Buyout

JACKSONVILLE, Fla. — During nearly a year of negotiations for the sale of the company, Winn-Dixie Stores [4] here had discussed a higher price than the $9.50 per share it ultimately accepted, according to a filing with the Securities and Exchange Commission.

In the proxy statement, Winn-Dixie described previous talk of a potential $10.50-per-share bid by Lone Star Partners, the Dallas-based investment firm that owns Mauldin, S.C.-based Bi-Lo [5]. Lone Star and Bi-Lo later agreed to pay $9.50 per share, or about $560 million, in an agreement scheduled to close within the next few months.

Randall Onstead, the chairman of Bi-Lo and the designated president and chief executive officer of the combined chains, first contacted Peter Lynch, the chairman, president and CEO of Winn-Dixie, last February about the possibility of acquiring Winn-Dixie. In early March, Bi-Lo and Lone Star proposed offering $8.20 per share, which at the time was a 24% premium to Winn-Dixie’s share price.

Winn-Dixie rejected the offer as too low, and retained Goldman Sachs as its financial advisor.

After consulting with Goldman, Winn-Dixie’s board determined that a financial buyer was unlikely to emerge, given the lack of synergies, weak cash-flow projections and the state of the debt market. Goldman was directed to contact other potential strategic buyers.

In June, after an unidentified strategic buyer expressed a possible interest in acquiring Winn-Dixie, Bi-Lo said would increase its offer $10.50 per share in exchange for exclusive negotiations. Yet another unidentified strategic buyer had expressed interest in an asset swap.

Bi-Lo and Lone Star, however, “terminated discussions” with Winn-Dixie after Winn-Dixie asked them to wait until after its Aug. 1 earnings release before finalizing exclusive merger talks. Lone Star soon afterwards sought to re-enter merger discussions, but Winn-Dixie rejected them.

Then in early November, after Winn-Dixie’s share price had fallen by about 35%, to about $6.39, Lone Star contacted Winn-Dixie again to discuss a merger.

Winn-Dixie said its directors then took into account several factors, including “recent financial performance, competition in the company’s markets (including product discounts being introduced by the company’s competitors in connection with the upcoming holidays), the decline in the company’s share price that had occurred since mid-July … and informal communications from shareholders regarding shareholders’ desire that the company take action to increase shareholder value,” Winn-Dixie explained in the proxy.

Winn-Dixie decided to re-enter merger talks with Lone Star, and on Nov. 30, Lone Star offered $9 per share. Winn-Dixie rejected that offer, and Lone Star countered with the take-it-or-leave-it $9.50 bid that Winn-Dixie’s board approved on Dec. 16.

Winn-Dixie said it was contacted in early December by other potential financial buyers, including one that was willing to offer $7.50 to $8 per share and another that was willing to offer $6.89, both pending due diligence.