TLC Beatrice sells off major food division: B.E. 100s top concern sells French food branch for $573 million - Brief Article

Black Enterprise, Dec, 1997 by Derek T. Dingle

A recent mega-deal by TLC Beatrice International Holdings Inc., No. 1 on the BE INDUSTRIAL/SERVICE 100 list, has meant a radical restructuring of company assets. It also provides an unexpected opportunity for several BE 100s companies to grab the coveted top spot on the BE INDUSTRIAL/SERVICE 100.

In one of the largest transactions ever in the French food sector, TLC Beatrice, which had sales of $2.2 billion in 1996, agreed to sell its mammoth food distribution business to Groupe Casino, a major French food retailer, for $573 million, which includes the reimbursement of an intercompany loan for roughly $ 115 million. The division includes Leader Price, the operator of 250 company-owned and franchised discount supermarkets of which TLC Beatrice had 51%, and the 400-store Franprix supermarket chain. TLC Beatrice held 97% of Franprix's wholesale operation and 74% of its retail operation. The combined companies posted gross sales of $ 1.9 billion in 1996. The sale price, however, was based on the 1996 profits of $59 million, a multiple 25 times those earnings. "We're very happy with the financial terms of the deal," says Butch Meily, TLC Beatrice's vice president of communications. "When you consider we didn't have 100% interest in either of the divisions and that grocery stores generally sell at 30-40 cents on the dollar, we think we got a very good price."

The divestiture now leaves the company with a core food manufacturing operation with gross sales of approximately $358 million. However, Meily says TLC's 1997 sales should still be sizeable, "because we'll probably include sales from the sold assets through the first three quarters."

But why? For starters, the sale came a month after TLC Beatrice announced a 33% increase in net earnings, from $41 million for the first half of 1996 to $55 million for the same period in 1997. The increase was due in great part to the robust performance of Leader Price. Not coincidentally, the company also realized a $15 million gain from the recent settlement of a lawsuit with Carlton Investments, the largest minority shareholder, composed of former executives of Drexel Burnham Lambert. Carlton contested a five-year, $22.1 million compensation package paid to Chairman and CEO Reginald Lewis prior to his death in 1992. With that suit finally behind them, the company was able to spring forward and make moves that had been sidelined.

"This sale marks an important step in our plan to unlock and realize the value of TLC Beatrice for its share-holders and thereby complete the work Reginald began," says his widow, Loida Lewis, CEO of the company. The transaction increased revenues for Groupe Casino to $21 billion, making it the second largest food chain in France and largest in Paris.

The deal concludes a year-long strategy that was orchestrated by Lewis and executed by her management team, led by Reynaldo Glover, TLC Beatrice's executive vice president and general counsel. In part, Lewis sought to maximize the value of the French distribution operation because of the put-and-call contract between TLC Beatrice and its French partners, which was triggered in July 1997. Under the agreement, the French partners have an option to sell their shares after July 1997 and TLC has the option to buy them on the same timetable. "Because of our contractual obligations, we had a mandate to pay particular attention to our French operation. We discovered that it was the right time for a sale," says Glover.

There were also other reasons the sale appeared attractive now. "There was a French law that limited the size of future stores, the overall consolidation of the country's food business and the attractive multiples that were being offered for food companies in France," says Glover. TLC Beatrice's French food operation sold for 25 times operating earnings, versus an average of 14 for American food companies of similar size.

In the spring, TLC Beatrice, working with its investment bankers, BT Wolfensohn and Banque Paribas, sent out prospectuses to over 30 European companies and received responses from several of them, including Groupe Casino. It took the two companies three to four weeks to structure the deal.

Lewis and her management team are now plotting TLC Beatrice's future direction. They used a portion of the proceeds from the sale to structure a $175 million cash tender offer for its 11.5% senior secured notes due2005. "We'll significantly reduce our costly debt obligations," says Lewis.

So what does TLC Beatrice look like now? Their current operations include: Tayto Ltd., a snack food company based in Dublin, Ireland; Helados La Menorquina S.A. and Interglas S.A., ice cream manufacturers located in Spain and the Canary Islands; Frisdranken Industries Winters B.V., Sunco N.V., St. Alban Boissons S.A., and Bireley's, beverage operations located in the Netherlands, Belgium, France and Thailand.

"We have an excellent collection of companies, and we will continue our program of maximizing value and increasing liquidity," Lewis maintains.