EXHIBIT (a)(7)
[PaineWebber Letterhead]
October 31, 1996
Board of Directors
Kash n' Xxxxx Food Stores, Inc.
0000 Xxxxxx Xxxx
Xxxxx, Xxxxxxx 00000
Madame and Gentlemen:
Kash n' Xxxxx Food Stores, Inc. (the "Company") proposes to enter into an
Agreement and Plan of Merger (the "Agreement") with Food Lion, Inc. ("Parent")
and KK Acquisition Corp., a wholly owned subsidiary of Parent (the "Purchaser").
Pursuant to the Agreement: (i) Purchaser will be merged with and into the
Company (the "Merger"), pursuant to which each issued and outstanding share of
common stock, par value $0.01 per share ("Common Stock"), of the Company (other
than shares held as treasury stock and shares owned by Parent, Purchaser or any
other wholly owned subsidiary of Parent) will be converted into the right to
receive the Consideration (as hereinafter defined) and (ii) at the option of the
Company as specified in the Agreement, prior to the Merger, Purchaser will make
a tender offer (the "Offer" and together with the Merger, the "Transaction") for
all of the outstanding shares of Common Stock at a price of $26.00 per share in
cash (the "Consideration").
You have asked us whether or not, in our opinion, the Consideration is fair,
from a financial point of view, to the holders of Common Stock.
In arriving at the opinion set forth below, we have, among other things:
(1) Reviewed the Company's Annual Reports, Forms 10-K and related
financial information for the four fiscal years ended July 28, 1996;
(2) Reviewed certain information, including financial forecasts,
relating to the business, earnings, cash flow, assets and prospects of the
Company furnished to us by the Company;
(3) Conducted discussions with members of senior management of the
Company concerning its businesses and prospects;
(4) Reviewed the historical market prices and trading activity for the
Common Stock and compared them with those of certain publicly-traded
companies which we deemed relevant;
(5) Compared the results of operations of the Company with those of
certain publicly-traded companies which we deemed relevant;
(6) Compared the proposed financial terms of the Transaction with the
financial terms of certain other business combinations which we deemed
relevant;
(7) Reviewed the Agreement dated October 31, 1996; and
Board of Directors
Kash n' Xxxxx Food Stores, Inc.
October 31, 1996
Page 2
(8) Reviewed such other financial studies and analyses and performed
such other investigations and took into account such other matters as we
deemed necessary, including our assessment of general economic, market and
monetary conditions.
In preparing our opinion, we have relied on the accuracy and completeness of
all information that was publicly available or supplied or otherwise made
available to us by or on behalf of the Company, and we have not independently
verified such information. With respect to the financial forecasts examined by
us, we have assumed that they were reasonably prepared on bases reflecting the
best currently available estimates good faith judgments of the Company's
management as to the future performance of the Company. We have not undertaken,
and have not been provided with, an independent evaluation or appraisal of the
assets or liabilities (contingent or otherwise) of the Company and have assumed
that all assets or liabilities (contingent or otherwise, known or unknown) of
the Company are as set forth in its respective consolidated financial
statements. During the course of our engagement, we have, at the request of the
Company, solicited third party indications of interest with respect to the
acquisition of the Company. Our opinion is based upon the regulatory, general
economic, market and monetary conditions existing on the date hereof.
Our opinion is directed to the Board of Directors and does not constitute a
recommendation to any shareholder of the Company as to whether or not any such
shareholder should tender his or her shares pursuant to the Offer or approve the
Merger. Our opinion does not address the relative merits of the Transaction and
any other transactions or business strategies discussed by the Board of
Directors of the Company as alternatives to the Transaction or the decision of
the Board of Directors of the Company to proceed with the Transaction.
This opinion has been prepared at the request and for the use of the Board
of Directors of the Company and shall not be reproduced, summarized, described
or referred to, or given to any other person or otherwise made public without
the prior written consent of PaineWebber Incorporated ("PaineWebber"); provided,
however, that this letter may be reproduced in full in the Proxy Statement or
Schedule 14D-9 to be filed with the Securities and Exchange Commission in
connection with the Merger and Offer.
XxxxxXxxxxx is currently acting as financial advisor to the Company in
connection with the Transaction and will receive a fee upon delivery of this
opinion and upon consummation of the Merger. In addition, a representative of
PaineWebber is a member of the Board of Directors of the Company.
In the ordinary course of our business, we may trade the securities of the
Company for our own account and for the accounts of our customers and,
accordingly, may at any time hold long or short positions in such securities. In
addition, an affiliate of PaineWebber holds approximately 553,600 shares of
Common Stock.
On the basis of, and subject to the foregoing, we are of the opinion that
the Consideration is fair, from a financial point of view, to the holders of
Common Stock.
Very truly yours,
PAINEWEBBER INCORPORATED
