Thompsons to stress 7-Eleven after Southland LBO

Nation's Restaurant News, July 20, 1987 by Don Jeffrey

Thompsons to stress 7-Eleven after Southland LBO

Southland Corp.'s controlling Thompson family, which plans to take the company private in a $4 billion leveraged buyout, says it will focus mainly on its fast-growing convenience-store chain, 7-Eleven.

Angry Southland shareholders, meanwhile, have filed suit against the company and the Thompsons to block their attempt to buy it for what they say is an inadequate price.

Thompson Co., formed by Southland's two top executives, John P. and Jere W. Thompson, and their brother Joe C. (Jodie) Thompson Jr., has said it would sell virtually all of Southland's businesses except 7-Eleven, distribution centers, food centers, and a 50-percent interest in Citgo Petroleum Corp.

The 7-Eleven chain grew from about 600 stores in 1961, when Southland founder Joe C. Thompson died, to about 3,000 in 1968. The number of stores is now 8,200, making it the largest convenience store chain.

In recent year 7-Eleven has become a major force in the fast-food industry, offering sandwiches, hot foods, and desserts. This year the chain is expected to ring up $659 million in food-service sales. The No. 2 convenience store chain, Circle K, has estimated food-service sales of $230 million from 3,500 stores this year.

JT Acquisition, a group formed by the Thompsons to buy Southland, has proposed buying as many as 31.5 million common shares at $77 each and all 2.5 million convertible preferred shares at $90.27 each, in a tender offer. Once the offer ends, each remaining common share may be converted for $61.32 cash and $15.68 in stated value of a new issue of exchangeable preferred stock. The Thompson family owns about 10 percent of the 48.8 million outstanding shares.

The buyout proposal came after weeks of takeover speculation forced the price of Southland's shares from about $47 each to nearly $70. During that time Southland announced it was considering restructuring alternatives. On the day the Thompsons' offer was announced, Southland shares fell 25 cents, to $68.50.

The shareholders filing the suit have said the Thompsons' proposal sets a "grossly inadequate price.' Southland said a special committee of outside directors judged the offer fair.

Observers said the Thompsons felt a takeover by outsiders would undermine their independence.

Wall Street sources said the Thompson proposal was made after Canadian investor and corporate raider Samuel Belzberg had forced talks with Southland about a possible takeover. Southland said Belzberg never made a firm proposal, but according to published reports, he suggested a leveraged buyout at $65 a share. Belzberg said he owned a 4.9-percent stake in Southland.

The Thompsons said they had lined up $2.73 billion in bank financing from institutions and $600 million in bridge financing from Goldman Sachs & Co. and Salomon Bros. Inc.

The family also said it would refinance Southland's $950 million in long-term debt. That means the company would need more than $5 billion to complete the deal. In a leveraged buyout the transaction is financed heavily by borrowing, with the company's assets as collateral.

To pay off the large debt, the Thompsons are expected to sell Southland's dairies, snack foods manufacturing plants, the Chief Auto Parts chain, and an ice-making facility that was the company's original business 60 years ago.

In 1986 Southland reported a net profit of $200 million, a 5.7-percent decline, on flat revenue of $8.6 billion.

Photo: Jere Thompson