BRUSSELS -- Delhaize Le Lion SA raised its bid to buy out the 55% of Delhaize America Inc. supermarket that it doesn't already own, placating U.S. shareholders who had complained that the Belgian grocer's original offer was too low.

Delhaize is now offering the shareholders of its U.S. arm 0.40 Delhaize share for every Class A or Class B share of Delhaize America they own, valuing the buyout at $1.9 billion. The transaction is expected to close in the spring of 2001.

When it announced its bid in early September, Delhaize offered Delhaize America shareholders 0.35 Delhaize share for each share of the U.S. unit -- terms that analysts said were below the going rate for supermarket-sector acquisitions. Delhaize currently has 52 million shares outstanding.

The buyout comes just one year after Delhaize created Delhaize America as part of its $3.3 billion acquisition of Hannaford Brothers Co., a grocery chain based in Scarborough, Maine. Delhaize America was intended to be a listed umbrella company regrouping all of Delhaize's U.S. businesses, including Hannaford and supermarket chain Food Lion Inc., which Delhaize has owned since 1976.

But Delhaize America shares performed poorly, trading at a discount to other U.S. food retailers and hampering Delhaize's plans to use the stock as acquisition currency to expand its already large presence in the U.S. With more than 1,500 U.S. stores, Delhaize is the second-largest food retailer on the U.S. Eastern Seaboard and ranks No. 5 overall among U.S. grocers. Delhaize America had 1999 sales of $10.9 billion. Delhaize had 1999 sales of $15.3 billion.

As originally proposed in September, Delhaize America's shareholders will have the option to receive either Delhaize shares, which trade on the Euronext exchange in Brussels, or Delhaize American depositary receipts listed on the New York Stock Exchange.

At 4 p.m. in New York Stock Exchange composite trading Delhaize America's Class A and Class B shares were both unchanged at $17.94.

Bill McCanless, chief executive of Delhaize America, and Hugh Farrington, Delhaize America's vice chairman, will both join Delhaize's board once the buyout is completed. In addition, Delhaize agreed to add three independent directors to the board to represent the interests of U.S. investors, who will make up a sizable portion of the Belgian company's shareholder base after the deal.

The five new directors will bring the number of Delhaize board members to 15, including seven directors who represent the founding Delhaize family's interests, five independent directors and three members of management. Although the Delhaize family will retain control of the board, the buyout will dilute its stake in the company to 20% from 35%, making the grocer more vulnerable to a takeover as the retail sector coalesces around a handful of behemoths such as Wal-Mart Stores Inc. and France's Carrefour SA.

1. How will Delhaize's corporate objectives change after the purchase of the remainder of Delhaize America?  Answer in terms of the criteria it would use for taking on new projects.
2. "... Delhaize America shares performed poorly, trading at a discount to other U.S. food retailers."  Why should this have happened?  Would the proposed buyout resolve this problem?
3. "As originally proposed in September, Delhaize America's shareholders will have the option to receive either Delhaize shares, which trade on the Euronext exchange in Brussels, or Delhaize American depositary receipts listed on the New York Stock Exchange."  Would there be any reason that American shareholders would not have wanted to hold Delhaize shares, assuming that the market value of the offered Delhaize shares would have been equal to the market value of Delhaize American ADRs?
4. It is sometimes said that investors can diversify on their own, and hence there is no value in corporate diversification.  Evaluate the original decision of Delhaize to expand into American markets from the point of view of the original Belgian investors.