OKLAHOMA CITY -- Fleming Cos. here said last week it has agreed to pay Furr's Supermarkets, Albuquerque, N.M., $800,000 a month for the life of its supply agreement with the retailer as part of a settlement in a contract dispute.
The settlement will also lead to the early termination of Furr's supply contract with Fleming, a 10-year contract which originally was scheduled to expire in March 2001. It will become an interim agreement that will be terminated within the next six to 19 months -- "a time span that gives us flexibility to determine what we want to do," said Buz Doyle, president and chief operating officer of Furr's.
Both sides said the arrangement -- which also addressed the possibility of an eventual change of ownership for Furr's -- would positively affect the New Mexico chain. Bill Dowd, president and chief operating officer of Fleming, which owns just under 35% of Furr's equity, said the settlement will strengthen Furr's financial condition.
Both companies told SN the monthly payment was part of a mutual agreement to resolve the legal dispute -- which included claims of overcharges -- and get their differences behind them.
Furr's officials said the positive effect of the settlement on the chain's financial position has led Furr's to examine strategic alternatives to maximize shareholder value. They said the company has retained Merrill Lynch & Co. as its investment banking firm to assist in the evaluation process.
Doyle said one of the company's more desirable alternatives is to become self-distributing -- possibly through the acquisition of Fleming's El Paso distribution center, of which Furr's is the largest customer.
Fleming said the settlement agreement outlines several options for the two companies, including the following:
The possible sale by Fleming of its El Paso distribution center -- although Dowd said Fleming is optimistic that the facility "will continue to provide vital food distribution support in west Texas and New Mexico, no matter who ultimately owns Furr's or [the facility itself]." Furr's operates 69 stores in New Mexico and west Texas. Its 1996 purchases from Fleming totaled $546 million, or about 3% of Fleming's total sales of $16.5 billion.
Furr's filed suit against Fleming in March, contending it was not getting a competitive cost of goods. The suit accused Fleming and several executives with overcharges, breach of contract, misrepresentation, fraud and violations of certain New Mexico trade practices. Despite the charges, Fleming continued to service the Furr's account.
Last week's settlement agreement terminates Furr's suit against the wholesaler and certain members of its management and Fleming's suit against Furr's and certain members of its board, each with prejudice -- a legal term indicating the two parties cannot legally pursue the same issues again. A pending arbitration -- involving a request by Furr's to terminate its supply agreement with Fleming in favor of buying from another wholesaler -- is also being dismissed, Fleming said.
Jan Friederich, chairman and chief executive officer of Furr's, said, "We believe this settlement is in the best interest of Furr's, its shareholders and, especially, its customers."