Etablissements Delha (NYSE:DEG)
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Belgian supermarket company Delhaize Group (DEG) Monday said it reached a preliminary agreement to buy $425 million worth of assets from the U.S. food retailer BI-LO, which is currently under bankruptcy protection.

The deal will enhance Delhaize's ability to compete on prices in the Southeastern states of the U.S., where Wal-Mart Stores Inc. (WMT) has a heavy presence.

The assets include most of BI-LO's 214 stores, which are estimated to have realized over $2 billion in sales in 2008, Delhaize said. Delhaize will also take on most of BI-LO's inventory and the right to continue using the BI-LO brand, without assuming any of the supermarket chain's debt, a spokesman for the Belgium-based company said.

BI-LO was forced into the US bankruptcy protection, Chapter 11, in March due to a heavy debt load that the company could no longer service.

The provisional deal was brokered by the two companies themselves. Neither BI-LO's primary shareholder, Dallas-based private equity fund Lone Star Funds, nor BI-LO's creditors have so far been involved in the negotiations, the Delhaize spokesman said.

The Belgian retailer already generates most of its profit and sales in the U.S., where it operates the Food Lion, Hannaford and Sweet Bay chains. In 2008, Delhaize's revenue from its U.S. stores was $19.2 billion.

On completion of the deal, Delhaize will integrate the BI-LO assets into its Food Lion chain, which is based mainly in the southeastern part of the U.S. where it has some 1,300 stores and around 74,000 associates, operating under the names of Food Lion, Bloom, Bottom Dollar, Harveys and Reid's.

BI-LO's grocery stores can be found in North Carolina, South Carolina, Tennessee and Georgia, and the supermarket chain employs approximately 15,500 people.

BI-LO operates a similar neighborhood-styled supermarket model to that of Food-Lion. It's pricing model, with an emphasis on special deals, is also close to that used by Food Lion, according to Delhaize.

The acquisition of the BI-LO stores in the southern states of the U.S., will make Delhaize's Food Lion stores more competitive, especially against Wal-Mart, says Bank Degroof's analyst Ivan Lathouders.

The competition for consumers' dollars is fierce in the U.S., where supermarkets mostly compete on low prices. Having more stores in a concentrated area will allow Delhaize to make efficiency savings, without loosing too much of its profit margin, Lathouders adds.

Before closing the deal, Delhaize and BI-LO need to obtain a final sale order from the bankruptcy court of South Carolina.

At 1015 GMT, shares in Delhaize were up 1% at EUR47.6. The stock is up 7.5% from year-ago levels.

Company Web site: www.delhaizegroup.com/

-By Peppi Kiviniemi, Dow Jones Newswires; +3227411483; peppi.kiviniemi@dowjones.com