Lone Star Funds, will pay $560 million for Winn-Dixie in an all-cash deal expected to close in two to four months, pending shareholder approval.

"Being able to create a company that is the 9th-largest traditional supermarket chain in the U.S. (by revenue), we feel very good about that," Bi-Lo CEO Michael Byars told the Observer.

The combination will result in Winn-Dixie being a privately held, wholly owned subsidiary of Bi-Lo. There are 207 Bi-Lo stores and 480 Winn-Dixies, and the combined company will have some 63,000 employees.

The new company will keep using both the Bi-Lo and Winn-Dixie names for stores. The company's store footprint doesn't overlap, Byars said, and he added he does not anticipate closing any stores or distribution centers.

The composition of the combined management team hasn't been finalized, Byars said. And the companies have not decided where the new headquarters will be, leaving open the possibility that Bi-Lo could become a Florida company.

Bi-Lo has some two dozen stores in the Charlotte market.

Both chains are traditional, legacy grocery stores that have struggled to find their place in a market now filled with Wal-Mart Supercenters, deep discounters such as Aldi, and high-end, organic chains such as Whole Foods.

Both Winn-Dixie and Bi-Lo took trips through bankruptcy court in the last decade. Bi-Lo emerged from bankruptcy protection last May, with plans to revitalize the chain following five years of declining sales at stores open a year or more.

Winn-Dixie came out of bankruptcy court in 2006. The company, which previously had stores in Charlotte and across the Carolinas, has continued to struggle. Last year, Winn-Dixie closed 30 stores and laid off more than 2,000 workers, including some 120 management positions.

In October, Winn-Dixie reported a $24.1 million loss for its most recent quarter. That number was an improvement from a $76.8 million loss for the same quarter last year, but the number of customer transactions at Winn-Dixie stores continued to fall, slumping 2.1 percent.

Bi-Lo will pay $9.50 a share for Winn-Dixie's stock, a 75 percent premium over the stock's Friday closing price.

Byars said that the combined chain will benefit from its heftier purchasing power and operational efficiencies, allowing it to give customers better prices. Both chains are also in the midst of efforts to lure customers back with store renovations and gasoline discounts such as FuelPerks.

The combined company will have stores in the Carolinas, Tennessee, Georgia, Florida, Louisiana, Mississippi and Alabama. It will be in head-to-head competition with regional grocers including Publix (with a total of 1,049 stores), Harris Teeter (206 stores) and Food Lion (about 1,200 stores).

While Bi-Lo was in bankruptcy court, Salisbury-based Food Lion made an unsuccessful $425 million bid for it.

Lone Star was reportedly interested in finding a buyer for Bi-Lo last year, and Reuters reported that Kroger and Publix were interested in the chain. Nothing came of the talks, however, and Byars wouldn't comment Monday on whether the combined chain could itself be sold.