Penn Traffic Still Seeks Last-Minute Buyers

MARK HAMSTRA

SYRACUSE, N.Y. — Penn Traffic here has reached an agreement with liquidators to sell off its assets, but is still seeking a last-minute buyer that would acquire most of its stores and continue to operate the chain, the company said last week.

In a filing with the U.S. Bankruptcy Court in Delaware, Penn Traffic, which filed for Chapter 11 protection in November, the company said it agreed to a pact with a group of sales agents that would bring in at least $36.5 million for 75 of its 79 locations.

The other four would be sold to Schenectady, N.Y.-based Price Chopper Supermarkets, which had previously offered $12.3 million for the stores and has since said to have been in talks on a new agreement for the locations.

“Penn Traffic has been engaging in, and continues to engage in, an active process of soliciting and responding to interest from a number of parties, including parties who have expressed interest in a ‘going concern’ of all or substantially all of the company's stores and assets,” Terry A. Kushner, vice president of advertising and marketing, Penn Traffic, told SN last week.

He said the process was “complicated and fluid,” and noted that any proposed transactions would be subject to an additional bidding/auction process and would require bankruptcy court approval.

Burt P. Flickinger III, managing director, Strategic Resource Group, New York, said discussions were ongoing last week with entities that were “working actively” to come up with a deal that would preserve much of the chain as an ongoing retail operation.

“If they liquidate the company, that would hurt the creditors,” he said. “We've analyzed the company several times, and we think the liquidation value is low. It would appear to benefit the financial advisors more than the creditors and the company.”

Flickinger said he expected that either a financial buyer or a strategic buyer could emerge to acquire a significant portion of the chain. He declined to speculate how much he thought the company was actually worth, saying it was too early in the process.

The “stalking horse” liquidation agreement, described as a lowest floor bid for the assets, lists as sales agents KROC Capital Services, Gordon Brothers Group, The Nassi Group, SB Capital Group, and DJM Realty Services. According to the filing, Penn Traffic and the agents would split 50-50 any revenue generated from store sales that exceeds $36.5 million and a $6.5 million fee for handling the sales.

The filing listed an estimated value of Penn Traffic's merchandise inventory at $40.5 million, plus $4 million in pharmacy inventory and 600,000 individual prescriptions on file.

Penn Traffic owns 17 stores and leases the rest of its locations, it said in a filing earlier this year with the Securities & Exchange Commission.

“Certainly there are stores that are viable,” said David Thomas, a real estate broker in the Syracuse office of CB Richard Ellis. He said he was not aware of any potential bidders other than the local reports of possible interest by Price Chopper and Tops Friendly Markets, Williamsville, N.Y.

In the filing detailing a proposal to sell four stores to Price Chopper, Penn Traffic said the employee-owned chain had previously offered $12.3 million in cash for the four locations in Massena, Potsdam, Gouverneur and Canton, N.Y. The Canton location includes a pharmacy.

That offer had been made in October, before Penn Traffic had filed for bankruptcy protection. Price Chopper last year had acquired two P&C locations in eastern New York and invested $4 million to refurbish than and convert them to its own banner.

A spokeswoman for Price Chopper told SN that the chain did not expect to have an update until January.

Most of Penn Traffic's current footprint lies sandwiched between Price Chopper's concentration in the Albany region of eastern New York and Tops' primary marketing area around Buffalo in the western part of the state. Hannaford Bros., based in Scarborough, Maine, with several stores in eastern New York, and Weis Markets, with stores in Pennsylvania and central New York, also have been mentioned in local reports as possible buyers for some Penn Traffic locations.

In a filing with the New York State Department of Labor last month, Penn Traffic said it notified its workers that it could seek to close all 53 of its New York stores by February 15.

The bankruptcy filing is Penn Traffic's third in 10 years. It listed assets of $150.4 million and debts of $136.9 million.

The company's problems, observers said, stemmed from the weak economy in the region it operates, strong competition from the likes of Wegmans and Price Chopper, plus an increasing Wal-Mart supercenter presence, and a revolving door in top management positions.

In 1998, shortly before its first filing, the company was generating annual revenues of $2.8 billion, operating 248 stores and running a thriving wholesale business supplying other independents in the region. It also had a relatively large independent bakery-supply operation called Penny Curtiss, which was shuttered in 2007.

In its most recent fiscal year, which ended in January, revenues had plummeted to $872.3 million, and that was before the sale of its wholesale distribution operations to its current supplier, C&S Wholesale Grocers, Keene, N.H.

It dissolved its Big Bear banner, which operated in West Virginia and Ohio, in 2003, as part of its second bankruptcy filing, and has since sold or shuttered another 30 stores.

The company's 79 remaining stores operate under the P&C, BiLo and Quality banners.

At the time of the second bankruptcy filing, Penn Traffic placed part of the blame on the nature of the first restructuring, which took place through a prepackaged bankruptcy reorganization.

Along the way the company also ran afoul of government regulators, who accused the company of fraudulently recording vendor allowances.

In 2007, two former employees, Leslie Knox and Linda Jones, were indicted on charges of securities fraud and mail fraud. Penn Traffic settled an SEC investigation of the matter last year.