Will Giant deal produce big profits for investors?


Most Wall Street deals happen far too fast for the average investor to make big profits by buying takeover stocks. With grocer Giant Food Inc., the process may be too slow.

On Monday, J. Sainsbury PLC of Britain said it will buy a 16 percent ownership piece of Landover-based Giant. Reading tea leaves, many investment pros believe Sainsbury will acquire the rest of Giant -- lock, stock and freezer cases.

What's more, they think Sainsbury's price for all Giant's public, Class A stock will be at a fat markup from the shares' present value.

They just don't know when. And that has kept Giant's A stock from soaring to the price that analysts believe it might command in a buyout.

"The stock actually hasn't done very much. A lot of people are surprised," said Gary Vineberg, a retail analyst for Merrill Lynch, a New York investment firm. "I think it's a very valuable company. Clearly un

dervalued on the market."

In the two days since Sainsbury said it would buy 9.6 million shares from Giant's co-founding Lehrman family and take control of three of seven board seats, Giant A shares have risen $1.75, or 8.1 percent, to $23.375.

But several retail analysts believe the stock could fetch $35 or even $40 a share in a Sainsbury buyout.

It's "easily" worth in the mid-30s, "when you value the real estate, the cash flow, the balance sheet," said Guy W. Ford, an analyst with Richmond, Va.-based investment house Scott & Stringfellow Inc.

Holding the price down is a formidable factor: Giant Chairman and CEO Israel Cohen. Mr. Cohen said this week that he has no plans to sell his stake, which controls a majority of director seats, to Sainsbury or anybody else.

Some analysts believe those plans will change.

Mr. Cohen is 82 and has no children or grandchildren working for Giant. His heirs may need to sell Giant stock to pay estate taxes after he's gone, tax experts said yesterday.

Sainsbury, for its part, likes to own 100 percent of the companies it invests in. Mr. Vineberg believes the company could easily afford the $2 billion-plus needed to buy all Giant's outstanding stock.

Sainsbury's buyout of Shaw's, a New England supermarket chain, started with a minority stake similar to the one it is taking in Giant. What's more, Chairman David Sainsbury said Monday that the company would be interested in Mr. Cohen's shares if they came up for sale.

But Sainsbury probably will put more Giant stock purchases on hold until -- and unless -- it gets board control, analysts said. That could take years.

"Anybody who now thinks their Giant stock is going to be worth $30 a share is nuts," said Edward Comeau, an analyst with Lehman Bros., a New York investment firm.

Mr. Cohen is still going strong. He comes to the office each day. He has said he intends to work until he is 90, as his father did.

The issue for investors, analysts said, is this: They may reap a 50 percent return on Giant shares. But it could take them eight or more years to do it.

And the uncertainties don't stop there.

Sainsbury might not end up buying all Giant's public shares, settling instead for the board control that would come with Mr. Cohen's voting stock. It might buy the public shares, but at an unexpectedly low price. Mr. Cohen may find a way to bequeath his voting block in a way that wouldn't trigger a buyout.

If there's a profit to be made in Giant stock, it may be from earnings growth, not a takeover play. Several Wall Street pros expect Sainsbury to push Giant to accelerate expansion in the Philadelphia/Delaware area.

That could boost profits. Giant earned $95.23 million in its most recent fiscal year on sales of $3.57 billion.

That was a 17 percent improvement over fiscal 1993's profit -- but 20 percent below earnings in fiscal 1991.

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