<BREAKFAST WITH THE FOOL>

Thursday, June 10, 1999

"You win more baseball games with three run homers than you do with sacrifice bunts." -- Earl Weaver

Latest Market Numbers

SuperValu Gobbles Up Richfood

The supermarket consolidation saga continues, this time with a twist. After the closing bell yesterday, food wholesaler and retailer SuperValu Inc. (NYSE: SVU) said it will expand from its Midwest power center into the Mid-Atlantic by purchasing fellow wholesaler/retailer Richfood Holdings (NYSE: RFH) for $18.50 per share in cash, or $1.5 billion including assumed debt. The price tag represents a 40% premium to Richfood's closing price of $13 1/4 last Friday, before its shares started acting funny on merger speculation this week. However, the purchase price is also 26% below Richfood's 52-week high of $24 7/8 reached in February, suggesting SuperValu may indeed be living up to its name by grabbing Richfood at an attractive level.

Food wholesaler/retailer hybrids like SuperValu and Richfood have traditionally been bigger players in the wholesaling side of the equation than retailing, but that is changing. The SuperValu-Richfood hook-up, which boosts SuperValu's overall exposure to retailing, illustrates this trend. With Richfood on board, SuperValu estimates that retail sales will represent about 33% of the companies' combined fiscal 1999 sales of $20.8 billion, up from the 29% slice of the revenue pie that retailing currently represents for SuperValu alone.

In terms of stores, Richfood's 93 Shoppers Food Warehouse, Metro, and Farm Fresh stores in Washington, D.C., Baltimore, and Tidewater, Virginia will boost SuperValu's total supermarket count by 46% to 296 stores, not including SuperValu's 142 corporately-operated Save-A-Lot limited assortment stores. That's small potatoes compared to the national networks of thousands of stores operated by supermarket pure-plays such as Safeway (NYSE: SW) and Kroger (NYSE: KR). But the new-look wholesalers' retailing operations are growing fast, with SuperValu adding 73 new stores in 1998 and Richfood adding 83 stores last year, largely through acquisitions.

For a company like SuperValu operating in the slow-growing, low-margin food wholesaling business, making a major acquisition is a quick and easy way to boost earnings. SuperValu expects Richfood to add $0.03 to $0.06 to its fiscal 2000 EPS and $0.12 to $0.16 to its EPS in fiscal 2001. Whether the beefed-up SuperValu can keep growing, maintain low costs, and implement new technology and retailing concepts to gain an edge over the consolidating national supermarket chains is the big question, of course. Nevertheless, it should be an interesting story for investors to watch in the months to come.

News to Go

Networking products company Cabletron Systems (NYSE: CS) could give back some of yesterday's 7% gain in trading today. German engineering and electrical products company Siemens AG denied published reports that it is interested in acquiring the company for between $22 and $26 per share.

Cable-based Internet service provider Excite@Home (Nasdaq: ATHM) has formed a joint venture with Australia's Cable & Wireless Optus to market its high-speed cable Internet service to 2.2 million Australian homes along Cable & Wireless Optus's broadband network Down Under.

Condiments and packaged food products maker H.J. Heinz Co. (NYSE: HNZ) announced a plan to repurchase up to 20 million of its outstanding shares over the next three years, replacing a recently completed 1997 stock buyback plan.

Water and wastewater systems manager Azurix Corp. (NYSE: AZX) will start trading for the first time today after selling 36.6 million shares in an initial public offering at a price of $19 per share. The offering raised approximately $654 million in proceeds, of which $349 million is set to go into the pockets of selling stockholder Atlantic Water Trust, which is 50% owned by energy company Enron (NYSE: ENE).

Temporary manual labor company Labor Ready (NYSE: LRW) set a three-for-two stock split, which will be payable July 12.

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Brian Graney (TMF Panic), Writer
Jennifer Silber (TMF Amused), Editor