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— Deals —
 May 13: Whole Foods delivers a profit: The purveyor of organic foods eked past
analysts' expectations by a penny, reporting Wednesday after market
close earnings of 19 cents per share on revenue of $1.9 billion. Meanwhile, Yucaipa Cos. has accrued a 7% stake in the retailer. Based on
Yucaipa's 13D filing
with the Securities and Exchange Commission in January, the firm is prepared
to take an activist position that might seek to improve Whole Foods'
operations
and its pricing while maintaining its high-quality product offering. -- Gerald Magpily Whole Foods is also fresh off a fight with the FTC over its Wild Oats acquisition. More on that below. May 7: Bruno's Supermarkets LLC will keep some checkout lanes open; the company found a buyer willing to keep 31 of its stores up and running. -- Ben Fidler In February, Birmingham, Ala.-based Bruno's filed for bankruptcy, for the second time.
April 20: Balducci's divests assets:
After a much heralded resurrection in its hometown of New York over
three years ago, gourmet food store Balducci's LLC is changing hands
again, a victim of the recession, competition and perhaps a changing
landscape in the retail food industry. -- Vyvyan Tenorio March 24: Bi-Lo joins Bruno's in Chapter 11: Both
food chains were sold off together by Royal Ahold NV in 2005. Now, less
than two years after new owner Lone Star Funds split them apart, they
find themselves queuing up together again -- this time, before a
bankruptcy judge. -- Ben Fidler In early March, the Federal Trade Commission and Whole Foods Market Inc. announced the end
of their two-year-old merger war, with a settlement that the agency
said covers 32 locations, only 13 of which are currently operating
stores. -- Cecile Kohrs Lindell Meanwhile, Metro AG unveiled breakup plans in January. But back to the Whole Foods saga. The FTC long continued its challenge of Whole Foods' $700 million takeover of Wild Oats Markets Inc. and sought to have it unwound, more than a year after the deal closed. In mid-December, a bipartisan group of senators inserted themselves in the debate over an element in the case: the FTC's rules for in-house merger trials. And after much back and forth through January, it appeared late in the month as if the two sides might settle. Whole Foods filed suit against the FTC earlier in December, weeks after things got messier in late November when a federal appeals court in Washington reissued a set of opinions on the case. It wasn't clear then what might be next for the case. Meanwhile, Whole Foods said Nov. 5 it would take a $425 million investment from Leonard Green & Partners LP to, as it feels the pinch of "these difficult times," CEO John Mackey said in a statement, The Deal's David Carey wrote.But back to the regulatory issues, where the clashes went on. Rounding out October, an antitrust lawsuit by customers came to light, which claimed the Wild Oats takeover allegedly caused higher prices. The deal was called into question again July 29, when the FTC saw a glimmer of hope as a federal appeals court told a lower court to reconsider a ruling that allowed consummation of the deal. Since then, the FTC has reconstituted its in-house litigation to rehash the matter. Earlier, the FTC withstood some grilling, but the fight goes on and as a result of the ruling, the merged entity could indeed be enjoined from further integration or unwound, Lindell noted. Meanwhile, Apollo Management LP was said to be in the running for Fresh Market Inc. Second-round bids were expected to come in around $800 million for the family-owned grocery chain, which operates largely in the Southeast and Midwest, sources told The Deal's Luisa Beltran May 29. Other firms that were said to be interested include Oak Hill Capital Partners, Yucaipa Cos. LLC and Kohlberg Kravis Roberts & Co. Blackstone Group LP looked at it, but decided against an offer, the sources noted. The company's owners, the Berry family, scrapped the auction in late July. Meanwhile, Europe has seen a string of deals this year: U.K. supermarket group Tesco plc unveiled a deal July 28 to buy Royal Bank of Scotland Group plc's 50% stake in their joint venture, Tesco Personal Finance Ltd., for £950 million ($1.9 billion). The move marks a significant push into the financial services sector for the U.K. grocery heavyweight, The Deal's Neil Sen pointed out. The news came weeks after private equity firm Apax Partners Worldwide LLP and its co-investors exited their investment in the Somerfield supermarket chain July 16. Co-operative Group Ltd. agreed to pay £1.57 billion ($3.14 billion) for the 880 Somerfield stores and become the No. 5 grocery operator in the U.K., after Tesco, Wal-Mart Stores Inc.'s Asda, J Sainsbury plc and Wm Morrison Supermarkets plc, The Deal's Laura Board pointed out. The price tag is far shy of the £2 billion to £2.5 billion the group hoped to fetch when it put the stores on the block in January, but exceeds the £1.1 billion it paid for the lot in 2005.
2007 IN REVIEW On Dec. 6 2007, Mexico's No. 2 retailer Organizacion Soriana SAB, unveiled plans to pay $1.35 billion for more than 200 supermarkets owned by smaller rival Grupo Gigante SAB, a deal that wrapped up the target's months-long strategic review. The deal came weeks after Delta (Two) Ltd. walked away from Britain's J. Sainsbury and a $24.7 billion offer. Sainsbury itself had rebuffed an offer from CVC Capital Partners Ltd. in April. Back in the U.S., Great Atlantic & Pacific Tea Co. and Pathmark Stores Inc. received the regulatory green light from the FTC on their $1.3 billion union Nov. 27, contingent upon the sale of six stores in Staten Island and Shirley, N.Y. and the deal was slated to close in December. A&P said Nov. 19 it was planning to divest stores agreed to by FTC staff attorneys, without naming them, and that it planned to close the deal, which creates an $11 billion chain, in early December. The deal was announced in March and enjoyed what seemed to be an easier regulatory path than Whole Foods-Wild Oats deal, which was announced two weeks earlier. And although the Whole Foods-Wild Oats merger uniting the two biggest organic grocers in the U.S. closed in August, the FTC continued to argue its case. While the U.S. Court of Appeals in Washington denied the agency's request for an injunction to block the deal, the FTC filed papers with the court Oct. 22 in a move to undo the merger, arguing that the case is not moot, as Whole Foods contended, because there was still a way to protect consumers. LONG TIME COMING While its outspoken CEO drove much of the talk of Whole Foods' Wild Oats takeover, the organic grocers' saga turned another page July 31, when Whole Foods took on the FTC to argue its case. On day one of the two day affair, pricing data seen as key to the FTC's case was ruled inadmissible, and onlookers were greatly anticipating the final outcome. As Lindell pointed out:
Whole Foods maintained the FTC requested information beyond its ordinary course of business on top of the millions of documents it already provided. The two had words ahead of court. RAISING THE CURTAIN Front and center to this story is Whole Foods CEO Mackey, who wasn't too discreet in his comments both on message boards, though he used a pseudonym, and to his board, as court documents revealed. Lindell noted that the FTC contended Mackey said he wanted to buy Wild Oats to end competition:
Ahead of the news, The Deal compiled a comparison of the "Two sides of John Mackey." The Whole Foods-Wild Oats deal was announced in February. The antitrust agency said June 4 it would block the proposed merger, just weeks after Whole Foods said it had run into regulatory trouble related to its planned acquisition, alongside its earnings release in May. To gain favor, Whole Foods said it would sell 35 Wild Oats stores to Apollo in late June, not enough to offset antitrust issues from which the FTC lawsuit stems. NEXT IN LINE For 2007, supermarket M&A kicked off strong but it slowed to a simmer as the year wore on. A&P said March 5 it would acquire Pathmark in a deal worth $1.3 billion in cash, stock and assumed debt, days after prospective merger buzz first surfaced and two weeks after Whole Foods and Wild Oats unveiled merger plans. Two deals in three weeks looked likely to set in motion an industry-wide shopping spree, as competition continues to mount on the organic end and discount retailers abound, causing headaches for traditional supermarkets. A March 26 Reuters report suggested Wal-Mart Stores Inc.'s British division Asda may have been eying Britain's No. 3 supermarket group Sainsbury, and that the retailer "was looking to contact" certain regulators to discuss potential antitrust issues. The company became the subject of auction buzz in February, since Blackstone, CVC, KKR and TPG Capital said they were considering an offer. The U.K. Takeover Panel gave the group until April 13 to formally bid for the company, or walk away. After losing its bid partners, CVC abandoned a planned $23 billion takeover. Weeks later, London-based Delta Three LLP, which is backed by the Qatar Investment Authority, revealed taking a stake in Sainsbury. The firm then said it paid £730 million ($1.4 billion) to buy a further 7.1% in the grocer on June 15. Three Delta then said July 24 it had tapped former Wal-Mart CEO Tony Campbell to front its likely $24.34 billion bid for the target. Delta (Two) then walked from the deal Nov. 4 blaming the credit markets and the inability to win over the target's pension trustees. Carrefour SA, meanwhile, has long been embroiled in plans to reduce its dependence on the French market's sluggish sales and falling prices and to expand in fast-growing, "hard discount" retail. In August, the company said that along with Swiss partner Maus Frères SA, it would sell its hypermarket joint venture to Switzerland's Coop for $390 million and later said it would spin off 60% of its real estate holdings in 2008 into a $27 billion to $33 billion company. The company said July 27 it would sell its Portuguese unit to Sonae SGPS SA for $909 million, after picking up 250 discount Spanish retailers from Germany's Tengelmann Warenhandelsgesellschaft KG July 16. Carrefour in June lost out to Spanish chain Grupo Eroski SA in a deal to acquire 75% of Spain's Caprabo SA from its controlling families and Spanish bank La Caixa SA in a deal estimated to be worth up to €1.3 billion ($1.8 billion). Eroski also beat out Permira, which owns Spain's DinoSol Supermercados. SMOOTH SAILING In early May, Royal Ahold NV sold its distribution business, U.S. Foodservice Inc. The unit drew interest from a wealth of private equity suitors and food service giant Sysco Corp. during its stay on the auction block. The division ultimately went to a Clayton, Dubilier & Rice Inc.-KKR team for $7.1 billion in a deal announced May 2. Sources told The Deal in March that CDR and KKR had teamed up on a bid, as did Bain Capital LLC, Blackstone and Wellspring Capital Management LLC. Madison Dearborn Partners LLC, GTCR Golder Rauner LLC and Thomas H. Lee Partners were also named as interested parties. The sale was part of a broader initiative to sell off assets to raise capital and to focus on its grocery business in the U.S. EXODUS But could the megaretailer eventually decide to vacate the U.S. for good? In December 2006, Royal Ahold agreed to sell its Polish operations to Carrefour for $500 million, one month after the company announced it would auction its U.S. Foodservice business and amid pressure to unload other U.S. operations. In a move to trim operating costs by $636 million by the end of 2009 and debt by roughly $2.6 billion, Ahold, which operates U.S. grocery chains Stop & Shop and Giant Foods, said it would unload its U.S. wholesale food operations, as well as the Tops stores in New York and Pennsylvania under its possession, other retail operations in Poland and Slovakia, and its minority stake in Portugal's Jerónimo Martins SGPS SA. The news unleashed a flurry of merger speculation in Europe, but also raised questions about the fate of its other U.S. holdings. (The company then said nearly a year later that it had sold U.S. food retailer Tops Markets LLC to Morgan Stanley Private Equity in a $310 million deal.) The restructuring news ignited buzz anew related to a possible tie-up between Amsterdam-based Ahold and Belgium's Delhaize Group, which owns the Food Lion chain in the U.S. Rumors of a prospective merger first surfaced in the fall of 2006. On Nov. 6, 2006, Ahold's CEO Anders Moberg said in a statement: "It is now time for us to focus our efforts on strengthening our retail competitive position, particularly in the United States." But it won't be easy. Earlier in 2006, Cordes said that the company cut a sales forecast for Ahold's U.S. retail operations as competition from Wal-Mart and Kroger grew. Giant, has launched its own organic brand to remain competitive, but like Stop & Shop, it continues to struggle. Further, a union between the Benelux region's two top supermarkets could shift focus back to European operations. And a lucrative sell-off for U.S. Foodservice -- the subject of a 2003 accounting scandal involving more than $1 billion in overstated earnings -- could also reinforce a U.S. exodus as worthy of more than just a passing thought. Ahold's retail units could draw interest from investors such as Ron Burkle, who pumped $680 million into Minneapolis-based Supervalu Inc. through his private equity fund Yucaipa Cos. in August 2006, marking his third supermarket investment in about a year. Yucaipa is also Pathmark's largest shareholder and will take a stake in the new A&P-Pathmark entity. Visit the complete Dealwatch Archive |
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