Bashas' Rejects Buyout Offer From Albertsons LLC

ELLIOT ZWIEBACH

CHANDLER, Ariz. — Bashas' here said last week it has rejected a buyout offer by Albertsons LLC, though the offer could become part of the court proceedings as Bashas' seeks to emerge from bankruptcy, industry observers told.

The 129-store chain has been operating under Chapter 11 protection since July 12.

Boise, Idaho-based Albertsons LLC — which operates 43 stores in Arizona — sent a letter to Bashas' early last month offering to buy the stores, the distribution center and the chain's offices for between $260 million and $290 million.

The letter also mentioned conversations Bashas' and Albertsons LLC have had over the past year regarding a proposed merger.

According to Michael McGrath, Bashas' bankruptcy attorney, executives of Bashas' had dinner with executives of Albertsons LLC “six months ago, and they had similar meetings six months before that, and six months before that, but there were never any substantive discussions as one might deduce from the wording in the letter.”

Edward N. Basha 3rd, Bashas' senior vice president, said the company had shared Albertsons' Feb. 5 letter, which it said was unsolicited, with the official unsecured creditors' committee and the chain's lenders, “[and] both the creditors' committee and Bashas' found the terms in the letter to be insufficient as compared to the 100% repayment plan submitted to the bankruptcy court [that] was presented by Bashas' and co-sponsored by the creditors' committee.”

Basha's statement did not refer to the attitude of the lenders toward the acquisition proposal. According to one observer, the lenders, who comprise the chain's secured creditors, “want to get their money, write off any losses and move on.”

Under the reorganization plan submitted to the U.S. Bankruptcy Court in Phoenix in late January, Bashas' said it intends to pay all secured and unsecured creditors in full, with interest, over a period of three to five years.

McGrath, a partner in the law firm of Mesch, Clark & Rothschild, Tucson, Ariz., told SN the bankruptcy court has approved the reorganization plans submitted by the chain and the unsecured creditors and has scheduled a confirmation hearing for April 6.

He said he hopes the lenders will support the plan by then. While there are still some points of contention, he noted, there are fewer than when the plan was initially proposed, and he said he is optimistic Bashas' can emerge by early May.

“The company has $60 million in the bank ready to distribute to creditors on the effective date it emerges from Chapter 11,” McGrath pointed out.

He said does not believe the letter from Albertsons LLC will slow the process down. “Because the offer would not pay all debtors in full nor leave anything for the family, it's clearly not an attractive alternative to the reorganization plan,” McGrath said.

Local sources told SN they expect Albertsons LLC ultimately to boost its offer, though it is unclear what, if anything, it would take for the Bashas' family to opt to sell.

“It's certain Albertsons is starting with a low-ball offer that barely covers the debt obligations that Bashas' has and leaves nothing for the Basha family to walk away with,” one observer told SN. “In real estate alone, the offer would leave a lot on the table if the family took that deal.

“Besides, the Bashas have such a long legacy and tradition in Arizona after operating there for 78 years that they would be unlikely to take the money at this point. What the family wants to do is rebuild its equity in the company over the next three to five years or more to get to a point where the shareholders might consider selling.”

From Albertsons' point of view, an acquisition of Bashas' would make a lot of sense “because it would provide an opportunity for them to shore up their Arizona operations,” the source pointed out.

He also acknowledged that the Albertsons LLC offer could prompt other bidders to come in — more likely investor groups than other retailers, he noted.

Albertsons declined to release the text of the letter to SN. According to locally published reports, the letter, from Robert Miller, chief executive officer of the 235-store Albertsons LLC chain, said, in part, “We believe such a transaction will help protect the value of Bashas' business and should be considered by your board and other interested parties before any plan of reorganization is voted upon.”

Christine Wilcox, a spokeswoman for Albertsons LLC, said her company did not file the letter with the bankruptcy court; that was done by a secured creditor, who attached the proposal to a court filing, she said.

“Albertsons LLC submitted a preliminary proposal to acquire Bashas' assets, subject to getting the opportunity to conduct appropriate due diligence on the company and make the best offer we can for the benefit of the many stakeholders, including staff in their stores and distribution operations [and] their general office,” she said.

Over the last four years, Albertsons LLC has been focused on improving its store base, she said.