management to study every nuance, every nook and cranny of a corporate plan or proposal.”
As she describes it, Lewis was putting in place her “program of maximizing shareholder value and increasing liquidity.”
ACT III: DISMANTLING THE TLC EMPIRE
Loida Lewis says that two years ago she didn’t plan to liquidate the company. The process evolved from the value creation model that she developed. “Initially, I thought that we would grow the company through an IPO. Mr. Lewis had always wanted to run a public company,” she says. “Our investment bankers’ analysis showed that as a company with European operations that sold shares in the United States, the market would not give our stock the value that it deserved. I believed that our steady increase in net profits from $1 million to $19 million over three years would provide us with a strong story to support the offering. Despite our company’s strong results, our investment bankers [Goldman Sachs & Co.] concluded that it was not enough.”
TLC would have to scrap the IPO.
“We looked at every possible permutation and transaction to meet Mrs. Lewis’ mandate of creating value and providing liquidity. We came to realize that the greater value to our shareholders was selling the company in pieces. The driving reality was that we had capital synergies, but not operational synergies,” maintains Glover. “Independently, each business was a good business, but when you looked at the portfolio, it was difficult to find anybody who had an interest in paying a premium for companies with no operating synergies or shared corporate philosophy and strategy.”
Moreover, contractual obligations forced the sale of TLC’s crown jewel, the French Food division. The unit, which represented two-thirds of TLC’s sales, included Leader Price, the operator of 250 company-owned and franchised discount supermarkets in which TLC had a 51% stake, and the 400-store Franprix supermarket chain, in which the company controlled 97% of the wholesale operation and 74% of its retail system.
TLC had structured a put-and-call contract with its French partners, which was triggered in July 1997. Under the agreement, the French partners had an option to sell their shares after July 1997 and TLC had the right to acquire them on the same timetable. “We had to do something quickly,” Lewis said. “Leader Price was growing by 40% a year, and if we waited until 1998, we would have been obligated to buy out a unit that would have increased in value by $100 million. We decided to sell.”
Market conditions also made it an opportune time to put the division in play. The factors: a French law limiting the number of supermarkets in the country, the overall consolidation of the country’s food business and the attractive multiples-25 times operating earnings vs. 14 times operating earnings for an American company of similar size-being offered for such concerns.
In one of the largest deals ever in the French food sector, TLC sold the operation to Groupe Casino, a major French food retailer, for $573 million, which included reimbursement for an intercompany loan