Tops Sale Marks Latest U.S. Divestment by Ahold

MARK HAMSTRA

Williamsville, N.Y. — Ahold last week said it has reached an agreement to sell its Tops Markets chain, based here, the latest in a series of asset sales since Amsterdam-based Ahold restructured in the wake of a 2003 financial scandal.

Morgan Stanley Private Equity, part of the Morgan Stanley investment banking firm, New York, said it would pay $310 million for Tops, which operates 71 stores in western New York state and northwestern Pennsylvania. It also has five franchised locations.

“These were underperforming stores, and it's safe to say it was a fire sale,” said Mitchell Corwin, an analyst with Morningstar, Chicago.

Ahold had previously sold off its Bi-Lo and Bruno's supermarket chains, its convenience-store banners and its U.S. Foodservice division, along with some operations overseas. Late last year, after a series of efforts to reinvigorate the Tops banner, Ahold said it would seek a buyer for that chain as well. It had already divested or shuttered 46 stores in Ohio and several others in eastern New York state.

“Nothing they tried at Tops worked,” said Corwin. He noted that, depending how many of its locations Tops owns, rather than leases, Morgan Stanley could recoup some of its investment through sale-leasebacks, as Sun Capital Partners did with Marsh Supermarkets in Indianapolis last year.

Price Chopper, based in Schenectady, N.Y., was previously reported to have been interested in Tops, and Burt P. Flickinger III, managing director, Strategic Resource Group, New York, told SN earlier this year that he was part of a group interested in buying the chain.

Ahold had folded Tops under the auspices of its more successful Giant of Carlisle, Pa., banner in 2003.

Morgan Stanley said it was assisted in the acquisition process by Frank Curci, who had been chief executive officer at Tops from 2000-2003 and has a long history of executive experience in the industry. Curci was expected to serve on the Tops board of directors and to “lead the transition team during the coming months,” Morgan Stanley said.

Max Henderson, executive vice president and general manager, Tops, said in a prepared statement that he would leave the company after a transition period to pursue other opportunities.

The transaction, which is expected to close by the end of 2007, marks the first foray into supermarket retailing for Morgan Stanley Private Equity. A spokeswoman for the investment firm declined to comment further on the deal.

Gary Matthews, who recently joined Morgan Stanley Private Equity as managing director and operating partner, praised Tops in a prepared statement.

“Tops is a well-regarded grocer with attractive long-term performance, strong employee relationships and a loyal customer base,” he said. “We are excited to continue Tops' tradition of outstanding service to customers and to maintain its position as a leading supermarket in the region.”

According to Metro Market Studies, Tucson, Ariz., Tops has a market share of about 28.8% in Buffalo, N.Y., behind No. 1 Wegmans Food Markets, which captures 33.4% of the market operating a third as many stores. In Rochester, N.Y., where Wegmans is based, Tops has an 11% share, behind Wegmans' 57.9%.

Morgan Stanley said it plans to retain Tops' store-level workers, field staff and office personnel in Williamsville, and that it will consolidate Tops' merchandising, technology and finance into the Buffalo area “over time.” Those functions had been handled by Giant-Carlisle. Tops employs about 10,000 people. One Tops store, located in Webster, N.Y., was not part of the sale and will be closed.

Ahold reported earlier this year that comp-store sales at Tops declined 5.5% in 2006, but the company in recent quarters had stopped releasing results for the banner. Together with Giant-Carlisle, the two banners posted $6 billion in sales last year.

In June Tops said it would buy back its 1 million-square-foot warehouse in Lancaster, N.Y., from C&S Wholesale Grocers to facilitate the sale of the chain. C&S, based in Keene, N.H., continues to supply Tops through the facility.