WAKEFERN COULD ACQUIRE BIG V FOR $150 MILLION

MARTIN SCHNEIDER

FLORIDA, N.Y. -- Big V Supermarkets here last week announced it has entered into a preliminary agreement that would lead to its acquisition by its wholesale supplier Wakefern Food Corp., Elizabeth, N.J. The purchase of the company would form the basis of Big V's reorganization under Chapter 11 bankruptcy protection, which it began earlier this year.

Karen Meleta, spokeswoman for Wakefern, told SN that Wakefern plans to continue operating the 38 stores as a single entity, and not divvy up the stores among its members.

Wakefern in the past has had a policy of buying stores from members who were exiting the supermarket business, then selling the stores back to different Wakefern members. Meleta said that Wakefern was not sure if it would sell the bulk of the stores to another member in the future, but was planning on indefinitely running the stores as a corporate chain.

The sale would be the final chapter in a series of court battles between Wakefern and Big V, which began in the 1990s when Big V had tried to exit the cooperative. Big V again tried to exit Wakefern this past year during its bankruptcy proceedings. A lengthy court debate followed this summer to decide whether Big V could exit the cooperative. Wakefern argued that the loss of Big V would be financially ruinous to the company if Big V did not pay a "withdrawal fee" upon its exit.

A bankruptcy court judge ruled last summer that Big V had to pay the fee, but did not specify the exact amount. Wakefern stated during the trial proceedings that the fee could have amounted to as much as $200 million.

Meleta said, "Keeping Big V's stores part of the Wakefern cooperative will strengthen the cooperative, keep us vibrant and competitive, and protect the future of our independent operators. We believe it is the best possible solution to the situation, and provides the best value to Big V's creditors and the estate."

Big V announced that the purchase price would be approximately $150 million, but stated that the actual value of the acquisition would be far greater, since Wakefern would withdraw several financial claims against Big V as part of the deal.

The largest financial sum that would be waived would be Big V's debts to Wakefern, which also could have included the "withdrawal fee" if Big V attempted to exit the Wakefern cooperative or sold its stores to another company.

Commenting on the proposed deal, Jim Toopes, president and chief executive officer of Big V, said that the deal came after intensive negotiations with Big V's creditors and other parties interested in the purchase of Big V, and that he feels the proposed sale of Big V to Wakefern was the best possible outcome.

"We believe the agreement we have reached with Wakefern provides an appropriate basis for a plan of reorganization that will ultimately provide favorable recoveries for Big V's primary creditors, particularly as compared with other plan alternatives that may be contemplated," Toopes said.

"We are optimistic that this process can be completed in early 2002," Toopes added.

During Big V's initial bankruptcy proceedings, it was revealed that Pathmark, Carteret, N.J., was looking into a possible purchase of Big V. Analysts told SN that it could have been harmful to Wakefern had Pathmark gone through with an acquisition.

Chuck Cerankosky, analyst with McDonald Investments, Cleveland, told SN, "Wakefern had a huge interest in keeping Big V part of the fold. The distribution business is very sensitive to volume. Losing 38 stores probably would have been a significant impact to Wakefern's profitability.

"If Pathmark had come in and bought the chain, it would have given them additional sales and buying power, which would give them an edge while Wakefern took a hit. But overall, the deal would not have heavily altered the competitive landscape in the region," Cerankosky added.