SHEBOYGAN, Wis. - While Fresh Brands here fielded initial offers as high as $8.15 a share for the sale of the company, it ultimately accepted an offer of $7.05 after potential buyers' due diligence revealed adverse conditions and Fresh Brands' stock tumbled in November.
In a proxy statement filed last week, Fresh Brands said executives sacrificed $1.7 million in severance payments to get shareholders an offer of more than $7 a share. It ultimately accepted a $7.05 bid from Certified Grocers Midwest, Chicago, in December, and is seeking approval of its shareholders to complete the transaction.
But at least one group of shareholders - a 5% owner that had expressed interest in acquiring Fresh Brands itself before touting the wholesaler to a private-equity firm whose offers were rejected - last week remained unconvinced Fresh Brands got the best deal it could.
"We believe it was a private and unfair bidding process that was not in the best interest of shareholders," Fred Chikovsky, a manager of Fresh Group, Hollywood, Fla., told SN. "The way they conducted the process, it was like they didn't want anybody [except Certified] to bid."
Chikovsky said last week that Fresh Group was considering filing an injunction to stop the proposed transaction.
The proxy statement described Fresh Brands' struggle to make and complete a deal amid news of dwindling company resources and heavy losses.
In a meeting last February, Fresh Brands' board of directors cited labor costs, the impact of additional competition from Wal-Mart supercenters, needed investments in technology, poor performance of corporate stores, and concern that it could not retain its franchisees in concluding it was too small to successfully compete over the long term.
"While our board expressed substantial optimism about the initial success of our then-relatively new value proposition operating strategy, our board was concerned that competitive market conditions were increasingly becoming more difficult for us and our franchisees," the filing read.
As a result of meetings between executives of Fresh Brands and Certified Grocers Midwest early last year, the companies began informally discussing a potential business combination. Fresh Brands subsequently interviewed six investment-banking firms to engage in a strategic review, selecting William Blair & Co., Chicago, in late March.
In the meantime, Fresh Brands said it met with a "significant shareholder" - sources told SN this was Fresh Group - which expressed initial interest in buying the rest of the company's shares. In April, the investor referred its interest in acquiring Fresh Brands to a private-equity firm, the proxy said.
In late May, Blair said that as a result of its strategic analysis it recommended Fresh Brands pursue a sale to a larger organization or well-capitalized private company, while simultaneously preparing a plan to close underperforming corporate stores and facilities. The company told Blair to formally pursue a sale with Certified and the private-equity firm on May 31, and to open up the process to other likely bidders in early June.
Over the next five months, a variety of offers and counteroffers were exchanged between Fresh Brands and Certified, the private-equity firm referred by the shareholder group, and an unnamed strategic buyer and its private-equity partner, the proxy said. An Oct. 12 offer of $8 from the private-equity firm might have been successful, the proxy said, had the fund been willing to drop an accompanying request for a 45-day exclusivity period in favor of an expense reimbursement and break-up fee arrangement offered as an alternative.
An initial letter of interest from the strategic buyer proposed a price of $8.15 a share. But after due diligence led it to re-evaluate the worth of the company, that suitor slashed its offer to around $5 per share and said it wouldn't be interested in making a deal until 2006, the filing said.
Fresh Brands had hoped to get a deal done by Nov. 16, ahead of the date at which it would be required to disclose $8.9 million in long-lived asset impairment charges related to its underperforming corporate stores. However, a potential deal with Certified by that date, at $7.35 per share, was scuttled Nov. 14 when Certified received information regarding Fresh Brands' pension liabilities.
Fresh Brands stock fell by 15% on the impairment charge and subsequent quarterly loss. Certified made a revised offer of $6.35 a share, then increased it to $6.70 as a result of further negotiations, the proxy said.
In late November, Blair advised Fresh Brands that Certified "was the only remaining reasonably likely viable purchaser of our company and that there were substantial risks in further delaying entering into a potential transaction." The private-equity offer, Blair said, had "a high degree of risk and uncertainty" and would likely be adversely affected by due-diligence investigation, among other issues.
To get a share price of at least $7 per share, Louis Stinebaugh, Fresh Brands' chief executive officer, and Walt Winding, the chairman of the board, agreed to accept decreases in severance payments, the filing said. These actions, along with other cost-saving initiatives, were worth $1.7 million.