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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/SERVICE100.
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 shareholders 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