WAYNE, N.J. -- Grand Union here said last week it plans to go to U.S. Bankruptcy Court today to seek approval to conduct an auction on Nov. 16 to sell its 197 stores.
The company filed a petition for Chapter 11 protection earlier this month.
According to Jeffrey P. Freimark, chief financial and administrative officer, Grand Union has already filed a sales plan with the court, including the auction, and any objections to that plan can be raised at today's hearing.
If there are no objections, the company will proceed with the auction, which Freimark said is standard procedure in a Chapter 11 that is not aimed at restructuring a company.
The auction will be held at the New York offices of the company's attorneys, Weil, Gotschal & Manges.
According to an industry analyst, bids, including those submitted in advance, will be announced openly during the auction process, enabling those who made lower bids to raise their offers if they desire.
The analyst said the auction could result in the sale of more larger stores and few smaller stores, "so even if the company sold less than 50% of its stores, it could sell more than 50% of total square footage."
Once the auction is over, Grand Union officials will spend a couple of weeks determining the highest and/or best bids, prior to making recommendations to the court, Freimark said. The company will return to court two or three weeks after the auction for approval for its recommendations, he added.
"The court's obligation is to accept the best offer on both a quantitative and qualitative basis," Freimark explained, "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."
Since the company filed for Chapter 11 at the beginning of October, it has continued to conduct talks with interested parties concerning potential sales, Freimark said, although no stores have been sold. However, any pre-auction offers could be superseded by better offers at the auction, he pointed out.
Even after the court has approved the bids, Grand Union must still conduct due diligence, "so it's unlikely any stores will actually change hands prior to the end of the calendar year," Freimark said.
One securities analyst, who asked not to be quoted by name, said he doubts there will be much interest in the auction process among potential buyers. "Companies have had two bites of this apple before," he said, referring to Grand Union's two prior bankruptcy filings, "and they could have bought stores on either of those two opportunities."
However, an analyst who follows distressed stocks told SN he expects considerable buyer interest, particularly in Grand Union's stores in the metropolitan New York area, including locations in northern New Jersey, Long Island and Rockland and Westchester counties in New York, and southern Connecticut.
"Many of those are good stores in locations that would be attractive to companies with existing stores in the area, such as A&P, Pathmark or Big V, or companies seeking to enter the marketplace, such as Safeway or Kroger," the analyst explained.
Grand Union stores in upstate New York tend to be smaller and might appeal to a more limited number of buyers, possibly including Penn Traffic, the analyst said, while stores in Vermont, which is a difficult state in which to develop real estate, could be attractive to an existing player like Hannaford, he added.
For any stores that are not sold, the Bankruptcy Court is likely to reject the leases, with companies interested in taking over those leases paying a fee to Grand Union to assume the lease.