UNION EYES BUY OF PENN TRAFFIC'S BI-LO UNITS

ELLIOT ZWIEBACH

NORRISTOWN, Pa. -- United Food and Commercial Workers Union Local 1776 here said last week it has had discussions with Penn Traffic Co. about buying some or all of the Bi-Lo stores in Pennsylvania.

The union said it expects to make a decision this week on whether to proceed.

Wendell Young 4th, executive vice president of the 1,700-member local, said the union's offer would encompass 36 Bi-Lo stores in northeastern Pennsylvania represented by Local 1776 and possibly 33 Bi-Lo units in northwestern Pennsylvania represented by UFCW Local 23, Pittsburgh.

Including both groups of stores "would make the continued survival of all Pennsylvania stores more viable," Young said. "By securing a purchaser for these stores who will honor the current labor contracts, workers will ensure themselves jobs with decent wages, health benefits and a pension plan."

Ron Kean, president of Local 23, said his union "is willing to participate in talks to explore the possibilities."

Young said the union will decide this week "if it's worthwhile to pursue a plan to buy all the Pennsylvania stores."

Penn Traffic, based in Syracuse, N.Y., said in June it was contemplating disposing of 78 Pennsylvania stores -- eight of which have subsequently been closed and one of which has been sold. "We believe the company may benefit from reducing its debt and focusing its efforts in New York, Ohio, West Virginia and parts of Pennsylvania," Gary D. Hirsch, Penn Traffic chairman, said at the time.

Asked for a comment last week on the union's efforts, a spokesman for Penn Traffic told SN, "we intend to keep confidential the process of soliciting and processing bids for the Bi-Lo operations."

Penn Traffic also operates 14 Quality Markets in Pennsylvania, which are not for sale.

If the union decides to proceed, Young said, it would attempt to buy the stores through an Employee Stock Option Plan, which he said would be identical to a leveraged buyout except that employees instead of members of management would be the buyers.

ESOPs are rarely used in the supermarket industry. One instance in which an ESOP was used was Rosauers Supermarkets, Spokane, Wash., which was acquired under an ESOP in 1990.

Young said several operators have expressed an interest in some of the stores, including Ahold's Giant Food Stores, Carlisle, Pa.; Price Chopper Supermarkets, Schenectady, N.Y.; Redner's Markets, Baldon, Pa.; and Weis Markets, Sunbury, Pa.

However, he said, none was willing to accept the successor clause in the union's contract that requires any buyer to rehire existing employees and maintain the contract's terms. "There's been some interest expressed for less than half of the 36-store group, but no one has been willing to honor the contract, and that's been the problem for Penn Traffic in trying to sell them," Young said.

Dennis Curtin, a spokesman for Weis Markets, told SN he was "reluctant to discuss an ongoing business situation but what Mr. Young is saying is sheer speculation." Representatives of the other chains could not be reached last week for comment.

Young said Penn Traffic approached Local 1776 in late summer "and asked us to waive the contract provisions preventing layoffs in return for a severance package for the employees.

"We took that request to the membership and it determined severance was only a short-term fix and said 'no.' "

As an alternative, the union decided to study the possibility of an ESOP, Young said. "We said to Penn Traffic that, even if the union took the severance deal, the company would only have buyers for some of the stores and it would still be stuck with the rest, whereas we would consider buying them all.

"So they allowed us to see their bid book and they've cooperated with additional data and information, and we should know within a week whether or not we can structure a viable deal."

Young declined to indicate what Penn Traffic is asking for the stores or what the union might bid. Industry observers told SN in June the stores would probably fetch about $250 million.

This is not the first time Local 1776 has attempted to acquire a chain through an ESOP, Young said, recalling that in 1990 the union had structured an ESOP to acquire Acme Markets, Malvern, Pa., from American Stores Co., Salt Lake City, "and we bid $1 billion -- which I believe may have been the only bid," he added. But American Stores decided to take Acme off the market, he said.