Before agreeing on a $9.50-per-share merger price last month, Bi-Lo LLC had offered to pay $10 a share to buy Jacksonville-based Winn-Dixie Stores Inc. in the spring and the two sides were discussing increasing the price to $10.50 in July, according to a preliminary proxy statement for the merger filed by Winn-Dixie last week.
But those negotiations fell apart and by the time merger talks resumed in November, the market price of Winn-Dixie’s stock had fallen sharply.
So its board of directors decided in December to accept a new offer of $9.50 a share, which was 75 percent higher than the stock’s market price at that time and also much higher than two other offers the company received.
Winn-Dixie agreed Dec. 19 to the $559 million buyout by privately owned Bi-Lo, a supermarket chain based in Greenville, S.C.
The proxy statement is being sent to Winn-Dixie shareholders so they can vote on the merger offer at a special meeting. The meeting date has not been set.
The merger prospectus also has financial projections showing that, while Winn-Dixie was expecting to increase sales and earnings before interest, taxes, depreciation and amortization (EBITDA) each year, the supermarket chain expected to continue recording net losses for the next three fiscal years before turning profitable in fiscal 2015.
The five-year financial projections have many caveats and were provided to Lone Star Funds, which owns Bi-Lo, but otherwise wouldn’t have been released to the public without the merger, Winn-Dixie said in the proxy.
They show expectations that total sales would rise from $7.1 billion in the current fiscal year, which ends in June, to $8.5 billion in fiscal 2016, with EBITDA growing from $125 million to $290 million over the five-year period.
However, Winn-Dixie also projected a net loss of $38 million for fiscal 2012. The loss would narrow over the next two years before the company would achieve a net profit of $27 million in fiscal 2015, it said.
The proxy statement, as is typical in merger deals, outlines in detail how the buyout came about.
It shows that the negotiations started in February 2011 when Bi-Lo Chairman Randall Onstead contacted Winn-Dixie Chairman and CEO Peter Lynch to say that Bi-Lo and its owner, Lone Star Funds, were interested in a possible buyout.
Bi-Lo initially offered $8.20 a share on March 7, a day that Winn-Dixie’s stock closed at $6.72. But a committee of independent directors on Winn-Dixie’s board decided that offer was too low.
In April, Winn-Dixie retained Goldman Sachs as an adviser on possible deals. Goldman Sachs then contacted three other unnamed potential buyers. None of those three made offers, but on June 3, Lone Star offered a new deal at $9.85 a share and it increased it to $10 on June 17. Winn-Dixie’s stock closed at $7.75 that day.
The two sides were negotiating an increase in the offer to $10.50 a share, but negotiations were hung up in late July by Winn-Dixie’s plans to announce preliminary financial results for the fourth quarter that ended on June 29.
Winn-Dixie’s independent directors said they could not make a recommendation on the offer until several days after the financial results were announced. Lone Star then expressed concerns about the delay and decided to end negotiations.
Winn-Dixie’s stock had reached a high of $10.08 in July. But after the merger talks ended, “the United States and world financial markets experienced significant volatility and negative news, such as the unprecedented downgrade of the U.S. government’s credit rating, that led to steep declines in the value of equity securities of many companies,” the proxy statement said.
Winn-Dixie’s stock fell to a low of $5.07 on Nov. 29.
However, Lone Star Managing Director Sam Loughlin had contacted Lynch in early November to re-engage in merger talks. Lone Star offered a new price of $9 a share on Nov. 29 and increased that to $9.50 on Dec. 2.
Following Lone Star’s new offer, Winn-Dixie received two other unsolicited offers from unnamed parties, one for $6.89 a share and the other for between $7.50 and $8.
On Dec. 16, Goldman Sachs told Winn-Dixie’s board that the $9.50 offer from Lone Star was a fair price, and the board agreed to accept it.
Not surprisingly, Winn-Dixie’s board is recommending that shareholders approve the deal.
The proxy statement also details how much money Winn-Dixie’s top executives could receive upon completion of the merger from their stock holdings and “golden parachute” payments based on a change of control of the company.
Lynch would receive the highest compensation. His stock holdings, including options that will vest with the merger, will be worth $6.4 million in the merger. Lynch also will be entitled to $4.4 million in severance payments as he leaves the company after the merger is completed.
The proxy says the board of directors did consider the payments to executives in making its recommendation to approve the merger proposal.
356-2466