INVESTOR GROUP SEEKS SEATS ON SPARTAN BOARD

Mark Hamstra

GRAND RAPIDS, Mich. -- Spartan Stores here is facing a stepped-up challenge from an investor group pushing for the sale of the company.

Loeb Partners, New York, which has previously urged that Spartan be sold, is now attempting to get a pair of nominees elected to the company's board of directors at the distributor's annual meeting, which is scheduled for August.

Loeb also hopes to effect a change in Spartan bylaws that would allow it to ask shareholders to vote on a proposal calling on management to seek a sale of the company, though it was unclear last week if Loeb would meet the deadline for including that proposal in Spartan's proxy. The investment company said in filings with the Securities and Exchange Commission it believes Spartan is undervalued and could maximize its return to investors by seeking a buyer.

Industry observers have speculated either Supervalu or Nash Finch, both based in Minneapolis, might be interested in acquiring Spartan because of its strong customer base in Michigan.

Jeanne Norcross, a Spartan spokeswoman, acknowledged Loeb is the company's largest single shareholder, "and they've shown a very definite interest in our company.- We continue to communicate with them about their interest in Spartan Stores, and we are aware of their desire to see some additional names in nomination for the board of directors."

She declined further comment, citing SEC guidelines. A Loeb representative declined comment when contacted last week by SN.

Peter Lewis, director of research, Towle & Co., St. Louis, which was Spartan's largest shareholder before Loeb stepped in, told SN that it applauds Loeb's efforts to maximize Spartan's value to investors, although Towle itself has not put pressure on Spartan's management to seek a sale.

"That doesn't mean we don't support somebody trying to get a fire going and realize some value," he said.

"We've been in touch with management regularly," he added. "I think they've made great strides, but if they can realize [full value for the stock] more quickly, that would be great."

Spartan's share price has nearly doubled so far this year and has more than tripled in the last 12 months. In recent trading it has exceeded $12 per share, close to the $13 minimum value Loeb in February said the company should be worth.

Given Spartan's continued strong performance, Lewis said Towle & Co. is "hopeful" that the stock could hit $15 or more.

"We looked at it compared to other grocers and other wholesalers, and it's fairly valued by some measures compared to competitors," he said. "It's not excessive or anything, so we hope to see it keep going. We don't think it's done here."

Lewis said Towle receives offers at least once a week from traders interested in buying its position in Spartan.

Loeb began accumulating Spartan stock in December and owns more than 7% of the shares outstanding.

In proxy filings with the SEC during the past several weeks, Loeb nominated two directors to Spartan's board: Eugene I. Davis and Timothy Bernlohr, neither of whom is affiliated with Loeb, the company said.

Davis, 50, is chairman and chief executive officer of Pirinate Consulting Group, Livingston, N.J., a consulting firm "specializing in crisis and turnaround management, merger and acquisition consulting, hostile and friendly takeovers, proxy contests and strategic planning advisory services for public and private business entities," according to the filing.

Bernlohr, 46, was listed as the president and CEO of RBX Industries, a manufacturer and distributor of rubber and plastic foam materials.

Neither man could be reached for comment. A person answering the phone at RBX said that company no longer exists and has been subsumed by Rubbertex International, Bedford, Va.

Davis also previously worked at RBX and was its chief restructuring officer during a bankruptcy in 2001.

Three director seats will be open at this year's annual meeting.

In addition to seeking to place its two nominees on the board, Loeb also said it wants voter approval to change the bylaws to allow management to sell the company. Spartan currently requires that proposals be submitted at least 120 days before the date of the proxy statement for the previous year's annual meeting. Since last year's proxy was filed Aug. 3, Loeb would have had to file its proposal by April 5 of this year.

In a letter to Spartan management filed with the SEC, Gideon King of Loeb explained, "We would very much like to submit a proposal which would create shareholder value by urging the board to maximize shareholder value by selling the company to the best and highest bidder, and we are formally asking you to accept this shareholder proposal for the shareholder meeting by changing or making an exception to the onerous 120 provision."