Home » Winn-Dixie Shareholders Attempt to Block Sale with Lawsuit

Winn-Dixie Shareholders Attempt to Block Sale with Lawsuit

A dissident group of shareholders would like to put the brakes on BI-LO LLC.’s purchase of Jacksonville, Fla.-based Winn-Dixie Stores Inc., reports the Jacksonville Business Journal.

A group of Winn-Dixie shareholders has filed a class action lawsuit against the grocer and members of its board of directors potentially blocking the proposed sale to the South Carolina grocer, which was announced earlier this month.

The suit states, in part, that the company and its board locked up the proposed transaction with deal protections that preclude other bidders from making a competing offer.

The class action lawsuit also alleges that Winn-Dixie and its board of directors breached their fiduciary duty to the shareholders in the $560 million deal with BI-LO, according to a news release from one of the law firms representing the plaintiffs, Jacksonville-based Jimerson & Cobb PA. Levi & Korsinsky LLP, of New York City, is working with Jimerson & Cobb in representing the Winn-Dixie shareholders.

Under the proposed acquisition, Winn-Dixie’s shareholders would only receive $9.50 per share of Winn-Dixie stock, which is less than the $11 target price, the news release states.

As of Dec. 19, 2011, Winn-Dixie had approximately 56.23 million shares outstanding.

The suit states, in part, that: “given the challenging economic environment, the price of Winn-Dixie common stock has been trading at a huge discount to its intrinsic value. As a result, BI-LO is seeking to acquire Winn-Dixie at the most opportune time, and a price that significantly undervalues the company.”

The deal value of $560 million is less than the company’s shareholders’ equity. As of Sept. 21, 2011, the company’s shareholders’ equity was $841.98 million.

According to the Journal: “The defendants have knowingly and recklessly violated legal duties of care, loyalty, good faith and independence owed to the shareholders of Winn-Dixie. This is a circumstance where personal interests were placed ahead of interests of Winn-Dixie shareholders,” said attorney Charles Jimerson.

The sale to the BI-LO is expected to close in the first half of 2012.

The proposed transaction values Winn-Dixie at 3.9 times earnings before interest, tax, depreciation and amortization in the past 12 months. That compares with a median of 7.9 times for supermarket deals globally since 2000, according to data compiled by Bloomberg—reports the Journal.

The suit also states that there is a provision in the purchase agreement that requires Winn-Dixie to pay BI-LO a termination fee of $19.6 million to enter into a transaction with a higher bidder.

Winn-Dixie operates approximately 480 retail grocery locations, including approximately 380 in-store pharmacies, in Florida, Alabama, Louisiana, Georgia and Mississippi; BI-LO operates 207 supermarkets in North Carolina, South Carolina, Georgia and Tennessee.

The combination of Winn-Dixie and BI-LO will create a company with about 690 grocery stores in the Southeastern U.S. and 63,000 workers.

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