Nash-Finch merger with Spartan Stores will lower risks for both companies and their shareholders, Nash-Finch CEO says

Nevin Barich

MINNEAPOLIS , July 25, 2013 (Minneapolis Star Tribune) – The $1.3 billion combination of Edina-based Nash Finch and Michigan's Spartan Stores will lower risks for both companies and their shareholders, Nash Finch's CEO Alec Covington said Thursday.

Covington's comments came in a quarterly earnings conference call with stock analysts. Nash Finch Co.'s second quarter net profits fell 7 percent over a year ago as the company's military grocery distribution business saw its earnings significantly crimped. But Nash Finch's sales rose 9 percent.

Nash and Spartan, both grocery distributors, announced the deal Monday, which will result in a Michigan-based company headed by Spartan's CEO Dennis Eidson, but with some operations still in the Twin Cities. The deal will reduce the two firms' costs by about $50 million going forward, cuts likely to stem partly from the disappearance of office jobs.

While cost reductions will be "painful," Covington said the deal is a boon to shareholders. "Synergies" will reverberate through the years, and the deal is structured as a merger, which means no tax hits to shareholders and no big debt pileup for the new company, he said.

Covington said he expects the merger will create about $300 million in value to Nash Finch shareholders. "I don't think I could provide that level of value to shareholders with any other strategic move," he said.

For Nash Finch, the deal produces a "huge upside" by spreading debt across two companies, Covington said. "We are reducing risks. The debt ratio will drop."

For Spartan, the deal reduces risk by diversifying the company geographically into the Upper Midwest -- it's currently focused on Michigan -- and diversifying the type of business it's in, Covington said. Nash Finch is big grocery distributor to U.S. military commissaries, as well as supermarkets, Spartan's mainstay.

Nash Finch's stock was down 15 cents to $24.90 in Nasdaq midday trading. The stock closed at $25.43 Friday before the deal was announced, rose Monday on the news but has retreated since.

Nash Finch posted second-quarter adjusted net earnings of $8.4 million, or 64 cents per share, compared to $9 million, or 69 cents per share, at the same time a year ago. The company's results were adjusted to exclude a one-time benefit of 4 cents per share in the latest quarter and a charge of $7.24 per share during last year's second quarter.

Nash Finch reported sales in the latest quarter of $1.2 billion, up from $1.1 billion a year ago and buoyed partly by the acquisition last year of 30 retail grocery stores in Nebraska.

The quarter's profit weakness stemmed from the firm's military distribution business. While military sales of $537.5 million rose 2.2 percent over a year ago, operating earnings fell 41.5 percent.

The decline was due to lower inflation this year, reduced contract profit margins and "several large casualty insurance claims related to transportation accidents," the company said in a news release.

On the conference call, Covington said the performance was "very unusual for us because we have had a great record for a number of years." He added that the insurance claims were a "one-time hit."

Nash Finch's commercial food distribution and retail division posted sales of $667.3 million, up 15.4 percent over 2012's second quarter. Operating profits in the division rose 39 percent.

Mike Hughlett --612-673-7003

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