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[XXXXXX XXXXXXX & CO. LETTERHEAD]
January 19, 1998
Board of Directors
Xxxxxxx Food and Drug Stores Company
000 0xx Xxxxxx, X.X.
Great Falls, MT 59404
Gentlemen:
We understand that Xxxxxxx Food and Drug Stores Company ("Xxxxxxx" or the
"Company"), Albertson's Inc. ("Albertson's") and a wholly owned subsidiary of
Albertson's ("Acquisition Sub") propose to enter into an Agreement and Plan of
Merger (the "Merger Agreement") which provides, among other things, for (i) the
commencement by Acquisition Sub of a tender offer (the "Tender Offer") for all
outstanding shares of common stock par value of $.01 per share (the "Common
Stock") of Xxxxxxx for $15.50 per share in cash, and (ii) the subsequent merger
(the "Merger") of Acquisition Sub with and into Xxxxxxx. Pursuant to the Merger,
Xxxxxxx will become a wholly owned subsidiary of Albertson's and each
outstanding share of Common Stock, other than shares held in treasury or held by
Albertson's or any affiliate of Albertson's or as to which dissenters' rights
have been perfected, will be converted into the right to receive $15.50 per
share in cash. The terms and conditions of the Tender Offer and the Merger are
more fully set forth in the Merger Agreement. We further understand that
approximately 51% of the outstanding shares of Common Stock are owned by FS
Equity Partners II, L.P. ("Xxxxxxx Xxxxxx") and that, concurrently with the
execution of the Merger Agreement, Xxxxxxx Xxxxxx will enter into a Tender and
Option Agreement (the "Tender Agreement") pursuant to which Xxxxxxx Xxxxxx will
agree, among other things, to tender the shares of Common Stock held by it in
the Tender Offer and to grant to Albertson's proxy with respect to the voting of
such shares. The terms and conditions of the Tender Agreement are more fully set
forth therein.
You have asked for our opinion as to whether the consideration to be
received by the holders of shares of Common Stock pursuant to the Merger
Agreement is fair from a financial point of view to such holders.
For purposes of the opinion set forth herein, we have:
(i) reviewed certain publicly available financial statements and other
information of the Company;
(ii) reviewed certain internal financial statements and other financial
and operating data concerning the Company prepared by the management
of the Company;
(iii) analyzed certain financial projections prepared by the management of
the Company;
(iv) discussed the past and current operations and financial condition and
the prospects of the Company with senior executives of the Company;
(v) reviewed the reported prices and trading activity for the Common
Stock;
(vi) compared the financial performance of the Company and the prices and
trading activity of the Common Stock with that of certain other
comparable publicly traded companies and their securities;
(vii) reviewed the financial terms, to the extent publicly available, of
certain comparable acquisition transactions;
(viii) reviewed the Merger Agreement, the Tender Agreement and certain
related documents; and
(ix) performed such other analyses and considered such other factors as we
have deemed appropriate.
We have assumed and relied upon without independent verification the
accuracy and completeness of the information reviewed by us for the purposes of
this opinion. With respect to the financial projections, we have assumed that
they have been reasonably prepared on bases reflecting the best currently
available estimates and judgments of the future financial performance of the
Company. We have not made any independent valuation
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or appraisal of the assets or liabilities of the Company, nor have we been
furnished with any such appraisals. In addition, we have assumed the Tender
Offer and the Merger will be consummated in accordance with the terms set forth
in the Merger Agreement. Our opinion is necessarily based on economic, market
and other conditions as in effect on, and the information made available to us
as of, the date hereof.
In arriving at our opinion, we were not authorized to solicit; and did not
solicit, interest from any party with respect to the acquisition of the Company
or any of its assets.
We have acted as financial advisor to the Board of Directors of the Company
in connection with this transaction and will receive a fee for our services. In
the past, Xxxxxx Xxxxxxx & Co. Incorporated and its affiliates have provided
financial advisory and financing services for the Company and Xxxxxxx Xxxxxx and
have received fees for the rendering of these services.
It is understood that this letter is for the information of the Board of
Directors of the Company and may not be used for any other purpose without our
prior written consent, except that this opinion may be included in its entirety
in any filing with the Securities and Exchange Commission in connection with the
Tender Offer and the Merger. In addition, we express no opinion or
recommendation as to whether the holders of Common Stock should tender their
shares in connection with the Tender Offer.
Based on and subject to the foregoing, we are of the opinion on the date
hereof that the consideration to be received by the holders of shares of Common
Stock pursuant to the Merger Agreement is fair from a financial point of view to
such holders.
Very truly yours,
XXXXXX XXXXXXX & CO. INCORPORATED
By: /s/ XXXX X. XXXXXXXXXXXX
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Xxxx X. Xxxxxxxxxxxx
Principal
