LOS ANGELES -- Yucaipa Cos. here said last week it has sold most of its 7.4% equity stake in Fleming because the distributor is not part of the investment group's long-range strategic plan.
In an interview with SN, Ron Burkle, managing general partner of Yucaipa, explained that Yucaipa got involved with Dallas-based Fleming as a way to bolster the efforts of Kmart Corp., Troy, Mich., to strengthen its food offerings. In a formal statement, he also expressed confidence in Fleming management and its future prospects.
Yucaipa, which purchased 3.8 million shares of Fleming common stock last March, sold 3.4 million shares last week to several industry investors. Yucaipa also owns 6.8% of Kmart common stock.
Burkle told SN that Yucaipa bought the Fleming stock at around $13 a share and sold it for $19 to $20 a share, for a profit of about $7 a share, or $25 million to $30 million.
In the SN interview, Burkle said his initial interest in investing in Kmart stemmed from his conclusion that supercenters were a better long-term investment than supermarkets.
But when it came to choosing a supercenter to invest in, "Wal-Mart was already too far down the road," Burkle said, "and Target was trading at too high a premium, so we put money into Kmart, even though it was a high-risk property.
"Then we had the opportunity to put Kmart together with Fleming to resolve Kmart's challenge of getting food in the stores at the right price. Fleming needed money to take advantage of the opportunity, so we put up the equity capital to help them service Kmart, and since we helped create that marriage, we got the opportunity to buy Fleming stock.
"We didn't buy Fleming stock for strategic reasons but simply because of the great upside. Fleming was not part of our long-term planning.
"Everyone always suspected our purpose was to merge Kmart and Fleming. What we said was, we would support whatever Kmart wanted to do to speed up its conversion to supercenters, and if Fleming and Kmart came together, that would be OK with us, but it was never our strategy to merge the two companies. Now, we've got a profit [on the Fleming stock], and we took it."
Asked if Yucaipa plans to hold or sell its Kmart stock, Burkle said the stock is "collared," meaning it's locked into a profit regardless of what Yucaipa does with it.
Fleming acknowledged Yucaipa's stock sale during a conference call last week that was organized by Bear Stearns as it re-initiated coverage of Fleming. During that call, one investment manager said, "It's usually not touted as a good thing when a huge investor sells a large chunk of stock."
In response, Neil Rider, Fleming's chief financial officer, said the buyers of the shares "are equally well-informed about our business," but he did not name them.
Ron Burkle, managing general partner of Yucaipa Cos., a Los Angeles-based investment group, has been instrumental in industry consolidation for the past 20 years. Burkle, who grew up in Yucaipa, Calif., near San Bernardino, originally went to work as a box boy for Stater Bros. Markets, where his father was president, before moving into the investment business. Here are some highlights of his career in the food industry:
Burkle forms investment company Yucaipa Capital Group, tries to acquire Stater but is unsuccessful. Yucaipa buys Jurgensen's Grocery Co., an old-line southern California retailer that hand-picks and delivers orders.
Yucaipa sells Jurgensen's, uses some of proceeds to acquire Falley's, Topeka, Kan., operators of superwarehouse stores. Also invests in Almacs Supermarkets, East Providence, R.I.
Yucaipa buys Cala Foods, a small northern California chain.
Yucaipa buys Bell Markets in northern California and Boys Markets in Los Angeles.
Yucaipa buys ABC Markets in Los Angeles, opens first Food 4 Less warehouse stores in southern California.
Yucaipa buys Alpha Beta, one of the major southern California chains, and merges Alpha Beta, ABC, Boys, Bell, Cala and Falley's into a new holding company, Food 4 Less Supermarkets. Yucaipa also sells Almacs.
Yucaipa acquires Smitty's, Phoenix.
Yucaipa acquires Dominick's Finer Foods, Northlake, Ill., in March and Ralphs Grocery Co., Compton, Calif., in June; merges Ralphs with Food 4 Less under the Ralphs banner.
Yucaipa sells Smitty's to Smith's Food & Drug Centers, Salt Lake City, giving company 24% stake in Smith's; Burkle named Smith's CEO.
Yucaipa sells Smith's to Fred Meyer Inc., Portland, Ore.
Yucaipa sells Ralphs to Fred Meyer, with Burkle becoming chairman of Fred Meyer. Yucaipa sells Dominick's to Safeway.
Yucaipa sells Fred Meyer to Kroger, with Burkle becoming chairman of Kroger's executive committee.
Burkle purchases 6.8% of Kmart stock, resigns from Kroger.
Yucaipa buys 3.8 million shares of Fleming stock in March; sells all but 400,000 shares in December.