INVESTOR PUSHES FOR SALE OF SPARTAN

Mark Hamstra

GRAND RAPIDS, Mich. -- An institutional investor in Spartan Stores here said in a filing with the Securities and Exchange Commission that it wants the wholesaler/retailer to put itself on the auction block.

"In our view, and for a number of reasons, Spartan should engage an investment banker to maximize shareholder value by selling the company," said New York-based Loeb Partners Corp. in the filing.

Loeb also discouraged Spartan from expanding its retail store base. "The path we suggest is clear: A sale is a simple way to create substantial value for this company without suffering the vicissitudes of risky expansion in the face of the growing penetration of entities such as [Bentonville, Ark.-based] Wal-Mart Stores," the filing stated.

The firm also said in the filing that Craig Sturken, chief executive officer, Spartan, had agreed to present Loeb's proposal to the board. A spokesman for Loeb, whose Web site said it "represents the interests of the Loeb family and affiliated entities," declined to comment to SN.

A spokeswoman for Spartan told SN that the food distributor "appreciates Loeb's interest," but added that Spartan "is not required to accept this recommendation."

Loeb has acquired about 1 million shares, or approximately 5.13% of Spartan's stock since December, making it the second-largest shareholder behind Towle & Co., St. Louis.

Peter Lewis, director of research at Towle, told SN last week that his company would back a sale of Spartan provided the purchase price met its target for the shares.

"[Spartan has] made tremendous strides, but it's not fully valued right now," he told SN last week. "Hopefully, if there is an offer, it would be at a substantial premium to the current share price."

Towle owns about 1.23 million shares, or about 6% of Spartan's stock.

Loeb Partners projected that Spartan should be worth about $13 per share based on the share-price-to-cash-flow ratios of other companies.

Late last week Spartan was trading at about $10 per share, up about 7.5% since Loeb's filing.

Spartan last month reported net income of about $13 million on sales of about $1.59 billion for the 40-week period ended Jan. 1, including $723.9 million in sales from its retail division and $861.9 million in sales from wholesale distribution.

Potential acquirers of Spartan include other large wholesalers, according to David J. Livingston, a consultant based in Pewaukee, Wis. "It would be a good buy for either Nash Finch or Supervalu, if they wanted it," he said, noting that Spartan has some sizable independent customers with a long history of success in the region.