WAYNE, N.J. -- The assets of Grand Union Co. here were put up for auction last week.
However, late last week it was unclear who ultimately would buy most of those assets, although C&S Wholesale Grocers, Brattleboro, Vt., was poised going into the auction to acquire 185 of the 197 stores and a distribution center in Montgomery, N.Y., for $301.8 million in cash.
C&S is Grand Union's principal supplier.
The auction was conducted Thursday at the offices of Grand Union's outside counsel, Weil, Gotschal & Manges, New York.
In related developments prior to the auction:
Grand Union and C&S, which had disclosed a preliminary agreement late last month, said last week they had reached a definitive agreement for the stores and distribution center. The wholesaler said it will retain some locations as corporate stores while spinning off others to some of its customers.
Grand Union said last week it has retained Excess Space Disposition, a real-estate consultant based in Lake Success, N.Y., to direct lease analysis and selected dispositions for the chain. It said the company will evaluate fee-owned property and leases in the chain's entire portfolio, including properties in the Southeast and Texas that Grand Union exited years ago.
Grand Union's 197 stores are in New Jersey, Connecticut, New York, Pennsylvania and Vermont. It has been operating under Chapter 11 since early October, when it filed for bankruptcy protection for the third time in five years.
The company said last month it did not plan to restructure this time but would liquidate its assets through the auction process.
Whatever bids were accepted at last week's scheduled auction are subject to approval by the bankruptcy court and federal antitrust agencies. Some bids were expected to be submitted in advance and announced openly during the auction, thereby allowing those who made lower bids to raise their offers if they desired, Jeffrey P. Freimark, the chain's chief financial and administrative officer, told SN prior to the auction.
He said Grand Union expects to spend a couple of weeks after the auction going over the bids prior to making recommendations to the bankruptcy court. The company expected to return to court later this month for approval of its recommendations, he added.
"The court's obligation is to accept the best offer on both a quantitative and qualitative basis," Freimark said, "which means that, even if one bid is higher than another, the court will determine if a lower bid has more quality for shareholders. For example, preference might be given to an entity that expresses interest in a greater number of stores."
Even after the court has approved the bids, Grand Union must still conduct due diligence, Freimark said, "so it's unlikely any stores will actually change hands prior to the end of the calendar year."
Observers said C&S would seem to have the inside track following last week's definitive agreement. However, if Grand Union decided to terminate its agreement with C&S and accept another bid, the wholesaler would be entitled to a breakup fee -- reportedly equal to 2.8% of the winning bid, plus reimbursement of up to $1.75 million in expenses.
Mark Gross, senior vice president and general counsel for C&S, told SN prior to the auction it is too early to tell how many stores the wholesaler might spin off and how many it would retain if its bid was successful.
Although C&S does not currently operate any corporate stores, Gross said it has done so in the past "but always with the ultimate intention of selling them to customers. The difference in this case is, we intend to operate a group of these stores."
According to Gross, Grand Union is C&S' third largest customer, behind Pathmark Stores, Carteret, N.J., and the Northeastern operations of Ahold USA, Chantilly, Va., which includes Stop & Shop and Giant Food of Carlisle, Pa.; he said C&S also provides certain items to Giant Food, Ahold's Landover, Md.-based operation.
The hiring of Excess Space Disposition is designed to help Grand Union shareholders enhance the return on its unsold locations, Michael Wiener, president and chief executive officer for the consulting firm, said. "The majority of the properties are well-located stores in mature markets [that] would offer excellent opportunities for independent or affiliated grocers or natural foods markets, as well as non-food retailers."
Besides stores in the Northeast, Grand Union's real-estate portfolio includes leases in Georgia and Tennessee -- remnants of the Atlanta-based Big Star chain it acquired in 1978 and sold in 1993 -- and in Texas, where it operated Houston-based Weingarten from 1981 until the early 1990s.
Excess Space Disposition is a specialist in real-estate disposition and lease restructuring for retailers nationwide. It said it leases, subleases or sells locations; negotiates lease terminations, bulk sale transactions and rent reductions; and renegotiates lease terms.