ALBUQUERQUE, N.M. -- Furrs Supermarkets here said Fleming, Dallas, could reject up to 26 of 66 retail locations under the terms of a transaction approved in U.S. Bankruptcy Court last week.
Fleming disclosed two weeks ago it had submitted the highest bid in Furrs' June 27 auction -- $57 million for real estate, equipment leases, contracts and licenses, plus approximately $50 million for inventory. That bid was approved by the secured and unsecured creditor committees and then submitted to the bankruptcy court.
Furrs operates 46 stores in New Mexico and 20 in west Texas with sales of approximately $700 million. It has been operating as a debtor-in-possession since filing for Chapter 11 protection Feb. 8.
Any stores that Fleming does not take will be retained by Furrs, which will then try to find buyers for them, Furrs said.
Regardless of the number of stores Fleming takes, the purchase price will not be adjusted, Furrs noted.
The deal does not include Furrs' 460,000-square-foot distribution center in El Paso, Texas, which Furrs said will be put up for sale on the open real-estate market.
Fleming said it plans to retain 10 stores in Texas as corporate locations and hopes to sell the rest to independent and chain operators that will use Fleming as their supplier. Fleming said the corporate stores will be operated in a price-impact format similar to the Food 4 Less stores the company operates elsewhere, although it has not been determined what the converted stores will be called, Fleming said.
The deal is expected to close within 60 to 90 days. Furrs officials said they anticipate it will take six to nine months after concluding the sale to close the remaining operations of the 97-year-old company.
According to Steve Mortensen, president and chief operating officer of Furrs, "We are pleased with the Fleming sale. We believe it provides the greatest value to the company and creditors with the least impact on our associates and communities."
He said Furrs management will work closely with Fleming "to provide for as many jobs as possible."
A Furrs spokesman said Fleming was not the only bidder at the company's auction, "but no other offer or combination of bids was superior to the one received from Fleming," he said. He declined to name any other bidders.
Furrs said the El Paso distribution center was not included in any of the auction bids. That facility, which was originally built by Furrs, was acquired by Fleming in 1991 and sold back to Furrs in 1998, after Furrs ended its supply agreement with the wholesaler and switched to self-distribution.
Furrs was originally a Lubbock, Texas-based company that was acquired in the 1980s by a German group. When the Germans opted to remove their money in 1991 to reinvest in the former East Germany, the chain was sold to members of management, who purchased only a portion of the original stores and moved the company's base to New Mexico.
Furrs had been a self-distributing company under the German ownership; after the sale, it opted to sell its El Paso warehouse to Fleming, which took an equity stake of approximately 30% in Furrs and became the chain's supplier.
Furrs was Fleming's largest wholesale customer until 1996, when the retailer filed suit, claiming Fleming was not giving it a competitive cost of goods and seeking to terminate its 10-year supply agreement with the wholesaler.
In an out-of-court settlement in 1997, Fleming agreed to terminate the contract and to pay Furrs $800,000 a month for the remainder of the agreement, which would have expired in March 2001, or until Furrs became self-distributing.
When Furrs announced plans to switch to self-distribution in 1998, the pending loss of that business prompted Fleming to close the El Paso warehouse. Furrs acquired that facility back from Fleming, and once that deal closed, Fleming's payments to Furrs ceased.
Fleming gave up its equity in Furrs last summer.
By spring 2000, Furrs had developed a new prototype that included expanded perishables and general merchandise, in-store nutritionists, drive-through pharmacies and self-checkouts, and was making plans to open new stores and remodel existing stores incorporating portions of the new design.
However, it ran into a cash-squeeze at the end of 2000, Tom Dahlen, the chain's former chairman, president and chief executive officer, told SN earlier this year. The problem stemmed from the need to replace a $50 million revolving line of credit that was due to expire last December, he said.
"The company started the process of replacing the credit line early in 1999, and we felt we had adequate lead time and would be able to get a bank deal done by January 2000, or by August at the latest. But it took us until last Dec. 21 to finalize a deal -- and that deal had restrictive covenants that impacted the liquidity of the company and our ability to have sufficient cash to move forward."
Dahlen said Furr's sales had been increasing through most of 2000, "but the cash required to run the business became more demanding, and without a bank deal, we were trying to operate within the $50 million line of credit, which made cash very tight.
"That became obvious at store level in October, and it kept getting worse. And obviously, without the issue of the bank credit line resolved, the logical course for vendors was to put credit limits on what we could buy and impose tighter terms."
As shelf inventory declined late last year, Furrs sales began running negative, Dahlen said, and the company filed for Chapter 11 protection early in February to eliminate its "burdensome debt structure" and to secure additional financing, he explained.
Dahlen left Furrs in March to join Fleming as president of the wholesaler's retail operations.
At the time of the filing, Furrs was operating 71 stores, with sales of approximately $760 million. In May, the company closed five of its stores -- three in Texas and two in New Mexico, including one of the prototype stores -- to create liquidity of about $1 million a month to keep the business going.