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Does New Winn-Dixie/Bi-Lo Giant Pose Threat to Major Grocers?

South Carolina-based Bi-Lo, LLC is purchasing the Jacksonville, FL based Winn-Dixie Stores (WINN) for $560 million. This represents a 75-percent permium on Winn-Dixie's previous closing price and

South Carolina-based Bi-Lo, LLC is purchasing the Jacksonville, FL based Winn-Dixie Stores (WINN) for $560 million. This represents a 75-percent permium on Winn-Dixie’s previous closing price and helped push shares of Winn-Dixie up some 70 percent in early trading.

Winn-Dixie Going Private

The purchase of Winn-Dixie by Bi-Lo, a privately held company, means that the grocery store will be delisted by the Nasdaq as Winn-Dixie becomes a privately held subsidiary. It also marks the birth of a new major player in the grocery business in the south. Winn-Dixie brings with it 46,000 employees working in 480 locations in Florida, Alabama, Louisiana, Georgia and Mississippi, including about 380 in-store pharmacies. These stores will be joining the 207 supermarkets operated by Bi-Lo in in North Carolina, South Carolina, Georgia and Tennessee. “With no overlap in our markets, the combined company will have a perfect geographic fit that will create a stronger platform from which to provide our customers great products at a great value, while continuing to offer exceptional service,” said Bi-Lo Chairman Randall Onstead.

Both Chains Have Struggled

Both companies have had financial troubles in recent years. Bi-Lo filed for Chapter 11 bankruptcy protection in 2009 only to exit one year later, and it’s owned by the private equity firm Lone Star Funds. Winn-Dixie, meanwhile, came out of bankruptcy protection in 2006. The company has been losing money of late, posting a $24 million loss in the most recent quarter. This was a narrowing of losses, though, from last year’s $76.8 million loss in the same period and came with a 3.1 percent year-over-year increase in net sales.

New Combined Stores Could Pose Threat to Bigger Players

While the deal is still up in the air pending shareholder approval from Winn-Dixie, the acquisition of Winn-Dixie, Bi-Lo now appears poised to seriously compete with major grocery players in the south, perhaps even giving the Great One itself, Wall-Mart (WMT), a run for its money. What’s more, should Bi-Lo expand into new regions, grocers like Korger (KR), Safeway (SWY), and SUPERVALU (SVU) could also begin to feel the squeeze. The new entity expects to keep both brands alive, citing strong brand recognition for Winn-Dixie in the south, and isn’t anticipating the closing of any stores as a result of the merger.

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