INVESTMENT FIRMS' GROWING POTENTIAL TO POWER THE INDUSTRY

David Merrefield

Among the 17 new names and entities that appeared in SN's Power 50 issue, published July 24, was one called "The New Private Investor."

As was mentioned on this page at the time, that label was selected to acknowledge the growing importance of investment capital on the food distribution industry. The most conspicuous of those investors is Cerberus, without which it's not likely the big deal of the year would have occurred: The breakup of Albertsons and the attachment of a large portion of its food retailing assets to Supervalu.

Since that time, there has been an onrush of events concerning investment groups, at least one of which is establishing its influence at a number of companies. That's important because investors can be viewed as a sort of net thrown over companies, a net that at some point could be drawn tight to produce cross-company influences, alliances or even mergers. Let's take a look, starting with another Supervalu event. As was reported in last week's SN, investment firm Yucaipa Cos. has made known its intention to take a 12% investment position in Supervalu. Yucaipa, headed by financier Ron Burkle, is the same firm that last week raised its equity position in Wild Oats Markets to 17%. It has a 40% position in Pathmark.

Could this mean anything is afoot for those companies? If so, it wouldn't be entirely without precedent. Yucaipa's hand was sensed in the ill-fated exclusive supply arrangement a few years ago between the now-defunct Fleming Cos. and Kmart Corp. Also a few years ago, Yucaipa packaged Ralphs and Fred Meyer for sale to Kroger Co.

Supervalu's management asserted last week that Yucaipa's investment was just that - an investment, and nothing more. There's no reason to doubt that's the case. Yet, Supervalu is now owner of Acme in the Northeast. Its operating arena is contiguous with that of Pathmark. More, it has long been speculated that Pathmark and A&P might combine. Lately, A&P has made a little push toward revamping stores as "fresh" formats not totally unlike Wild Oats. The prototype is in Midland Park, N.J. A&P is rich in locations that could be moved toward fresh merchandising. Could all those assets be combined somehow?

Another deal taking shape under the aegis of an equity firm concerns Marsh Supermarkets, which intends to sell to an affiliate of Sun Capital Partners. On its face, this appears to be a freestanding deal without evident alliance potential with another supermarket operator. Yet, Sun has retail experience, having invested in retailers such as ShopKo and Drug Fair. It's not difficult to imagine a tidied up Marsh being offered for sale to an adjacent operator, such as Kroger, in the future.

Meanwhile, pressure emanated last week from two investment firms that could inspire big change at Ahold, the Netherlands-based supermarket and food-service operator with holdings in this country. Centaurus Capital, London, and Paulson & Co., New York, offered the opinion that Ahold should divest its American holdings, converting to a pure-play European retailer. That, they claimed, would enhance its value to Ahold shareholders. The two investment firms have a combined position of 6.4% in Ahold, showing how firms can unite forces. Ahold's stock rose on that development.