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Winn-Dixie files for bankruptcy protection

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This might already have been posted, but anyway:


UPDATE 5-Winn-Dixie files bankruptcy; loses out to Wal-Mart

Tue Feb 22, 2005 03:35 PM ET

(Adds NYSE suspending stock in paragraph 17-18)

By Ellis Mnyandu

NEW YORK, Feb 22 (Reuters) - Winn-Dixie Stores Inc. (WIN.N: Quote, Profile, Research) , once among the most profitable of U.S. grocers, on Tuesday said it filed for bankruptcy protection, succumbing to stiff competition from giant discounter Wal-Mart Stores Inc. (WMT.N: Quote, Profile, Research) .

The grocer, founded in 1925, said it had lined up an $800 million debtor-in-possession financing from Wachovia Bank, replacing a $600 million credit line.

It filed Chapter 11 petitions late on Monday at the U.S. Bankruptcy Court for the Southern District of New York, according to a company statement. Winn-Dixie said the petition covered itself and 23 U.S. subsidiaries.

It said its 920 Winn-Dixie stores remained open, but analysts expected that number to be trimmed because the company can now ditch leases it does not want. Jacksonville, Florida-based Winn-Dixie said it would seek to sell assets and terminate leases of about 150 stores it had closed.

The petition listed assets of $2.23 billion and debts of $1.87 billion.

Winn-Dixie said it owed $15.1 million to its biggest trade creditor, Kraft Foods Inc. (KFT.N: Quote, Profile, Research) and affiliates. Kraft said it has adequate bad debt reserves to cover any fallout.

For years, Winn-Dixie dominated markets across the U.S. South and in the Bahamas. But analysts said it has lost touch with customers and grown burdened by dilapidated stores. Its latest quarterly loss was larger than expected.

In recent years, it has lost market share to rivals including Publix Super Markets, Inc. and Wal-Mart.

Despite a 10-month restructuring and a push to improve operations and cut costs, Winn-Dixie continued to struggle. Vendors tightened supply terms in the past two weeks.

Newly installed Chief Executive Peter Lynch, a former Albertsons Inc. (ABS.N: Quote, Profile, Research) executive, said in a statement the company would work on "significant cost reductions, improving the merchandising and customer service in all locations."

Corporate bond holders were encouraged by potential savings of about $60 million a year from lease terminations. Prices of the company's 8.875 percent notes due 2008 rose about 0.38 cents on the dollar to 58.875 cents, according to MarketAxess.

Approximately 27 bond holders own the company's $300 million of senior unsecured notes, according to the filing.


Evan Mann, a senior bond analyst at Gimme Credit, said some customers would probably view the bankruptcy as another reason not to shop at Winn-Dixie.

"The real big issue is what's going to happen over the next one or two quarters now that they are in bankruptcy and all their customers see this in their local newspapers.

"Bad publicity," he said, "it gives a lot of their competitors maybe a window to steal customers and maybe to be a little bit more aggressive on price. If they could maintain their sales, then that would be encouraging about their ability to reorganize."

The New York Stock Exchange said it suspended trading in Winn-Dixie on Tuesday, after shares slumped to 73 cents in pre-market trade on the Inet electronic brokerage system from a Friday NYSE close of $1.47.

According to the NYSE, Winn-Dixie expected the stock to trade on the over-the-counter bulletin board. The stock had largely become a one-way bet for short-sellers -- contrarian investors who profit when a stock plummets.

Analysts said Winn-Dixie must scale down operations, focus on profitable markets and avoid going head-to-head with Wal-Mart, whose size allows it to extract better terms from suppliers.

Winn-Dixie's bankruptcy filing came as U.S. movie theaters began screening "Because of Winn-Dixie," a film about a young girl who adopts an orphaned dog, named Winn-Dixie for the supermarket where she found him. (Additional reporting by Nicole Maestri and Dan Wilchins)


from: www.reuters.com


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Here's a south florida perspective. Apparently Winn Dixie got it's start down here.

Maybe it'll end down here as well.


S. Fla. strategy could revive grocery

Winn-Dixie filed for bankruptcy protection as its vendors cut off shipments without cash payments. But experts doubted a reorganization would help it rebound.


[email protected]

Winn-Dixie will scale back and focus on key markets, including South Florida, where its 92 stores have been remodeled.

Winn-Dixie bought itself some time and money by filing for bankruptcy protection and hopes to model itself in the image of its South Florida stores, which recently have undergone expensive makeovers.

But industry experts remain skeptical about the long-term future of the supermarket chain that was born in Lemon City.

The Jacksonville-based company, which is one of South Florida's largest employers, will have to scale back its operations as it attempts to fight off the competitive squeeze from Wal-Mart stores and Publix Super Markets.

Faced with increasing losses and pressure from suppliers, Winn-Dixie filed for Chapter 11 bankruptcy protection late Monday night in a New York bankruptcy court with plans to reorganize. The company also secured an $800 million loan from Wachovia Bank that will enable the doors to remain open, at least for now, at the chain's 920 stores.

Under Chapter 11, a company is allowed to reorganize its debt under court supervision.

''The environment is against them,'' said Mitchell Corwin, an analyst with Morningstar in Chicago who covers the industry. ``The supermarket industry has to shrink, and the weaker players will be the first ones to go. It's more likely than not, that Winn-Dixie doesn't survive.''

A scaled-down Winn-Dixie is expected to focus on its core markets, including South Florida, where its the 92 stores are being upgraded and remodeled as part of a new ''neighborhood market'' strategy. Winn-Dixie has tailored the product mix and displays in those stores to the communities and has tried to improve customer service.

The South Florida focus is only fitting since WinnDixie's roots lie in Miami, where William Milton Davis and his sons bought the Rockmoor Grocery in 1925.

Chief Executive Peter Lynch, who took over the helm in December, said the company will evaluate every store's performance and announce a plan in the next month or 45 days for shrinking the company.

''It will be fewer stores and fewer people,'' Lynch said in an interview Tuesday night after spending the day meeting with some of the company's 79,000 employees. ``We've already been working on a turnaround plan. This gives us a little more energy to get it moving.''

While Lynch declined to elaborate on how extensive the closings will be, industry analysts expect there will be limited closings in South Florida and throughout the state.

Winn-Dixie has already asked the bankruptcy court for approval to terminate the leases of 150 stores that have already been closed, as well as two warehouses. These moves are expected to save the company an additional $60 million a year.


But analysts aren't convinced this will be enough, especially since supermarket companies have a habit of filing for bankruptcy protection multiple times and rarely emerging with a successful reorganization. It could be just a matter of time until Winn-Dixie is forced into a Chapter 7 bankruptcy, which calls for liquidation, analysts said.

''We remain highly skeptical that these moves, encouraging as they are, will deliver an ultimate turnaround at the company,'' wrote John Heinbockel, industry analyst with Goldman Sachs. ``Even after these cost savings, Winn-Dixie will still be an unprofitable company.''

While Winn-Dixie has been struggling for several years, the noose really tightened around the company's neck during the past week as many of its largest suppliers began demanding cash upfront for shipments.

'Once you lose the vendors' confidence, it's game over,'' said Evan Mann, a high-yield analyst with Gimme Credit, a New York-based independent research firm. ``The credit you get from vendors is the lifeblood of any retailer.''

Suppliers got scared after Winn-Dixie reported a loss less than two weeks ago of $399.7 million for the second quarter, compared with $79.5 million during the same period last year. The company also revealed that its available cash and credit supply were dwindling.

Winn-Dixie reported total assets of $2.2 billion and liabilities of $1.9 billion, as of Jan. 12.


The company's bankruptcy petition lists its largest trade creditors as Kraft, owed $15.1 million; Pepsico, $14.6 million; and Procter & Gamble, $6.1 million. The largest institutional creditors are the holders of the $300 million in bonds due in 2008. Capital Research and Management Co. is owed $45 million and Vanguard Group, $23.6 million.

The bankruptcy filing changes the game for Lynch, who was expected to be given at least until the end of the fiscal year to stem the bleeding.


Lynch has already claimed an early success in his neighborhood store strategy. Valentine's Day sales were up 38 percent over last year.

''When we focus and we show people the right way, we can get things done,'' he said.

As an incentive to improve the company's performance, Lynch was given three million shares of the company stock, which made him the largest individual shareholder.

But the company is likely to be removed from the New York Stock Exchange, where it was the first Florida industrial corporation listed and has traded since 1952. Trading in Winn-Dixie was halted Tuesday. The stock closed at $1.47 on Friday, compared with its peak of almost $60 per share in 1998.


The bankruptcy filing could leave shareholders with little or no value. That move is particularly devastating for the descendants of Winn-Dixie's founder, William Milton Davis. Individually and through the family's investment company DDI Inc., the Davis family owns the largest portion of the company, 36 percent, or 51.7 million shares.

A statement issued by E. Ellis Zahra Jr., president of DDI, called the filing a ``difficult day in Winn-Dixie's history.''

Still, said Zahra, who is not a family member, ``we firmly believe this is the best option for the long-term health of Winn-Dixie.''

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