Will buyers fix, sell or shut your Acme?
Cerberus, Lubert-Adler hope to squeeze more value from aging Acme and peers: $100M buys 877 stores, $3.2B in debt
Will buyers fix, sell or shut your Acme?
Joseph N. DiStefano
Ailing Acme Markets, one of the Philadelphia area's largest employers with more than 13,000 local workers at more than 100 supermarkets, will be taken over by a group of private equity firms and real estate investors, its owners said this morning.
Supervalu Inc. "announced today a definitive agreement under which it will sell its Albertsons, Acme, Jewel-Osco, Shaw’s and Star Market stores and related Osco and Sav-on in-store pharmacies" for $100 million in cash plus the assumption of $3.2 billion in debt. The sellers hope to close the sale later this winter. The deal covers 877 stores including the Acmes.
Buyers are a group led by former Chrysler owner Cerberus Capital Management LP and including Kimco Realty Corporation, Klaff Realty LP, Philadelphia-based Lubert-Adler Partners and Schottenstein Real Estate Group.
Statement here. Bloomberg story here.
The same group bought 616 Albertsons stores in Northern California, Texas, Florida and Arizona in 2005-06, put a management team headed by supermarket veteran Bob Miller in charge, and made the stores profitable and popular enough that they've been able to sell hundreds of the stores to other operators: for example, Publix (Florida, 2006) and Savemart (Northern California, 2008).
Presumably they hope to repeat that record with Acme, Boston-based Shaw, Chicago-based Jewel and the other chain supermarkets that are part of the current deal, which they buyers hope to close later this winter. But not all the Albertsons stores the groups bought have prospered. For example, the chain plans to close most of its remaining Florida stores, idling 1,100 workers, reported the Lakeland Ledger here last year.
Acme owns less than half its own real estate, which would gain in value if sales and profits increase.
EARLIER: The deal leaves Supervalu as operator of discount Save-A-Lot stores and several chains in other parts of the U.S. The investors agreed to make an offer to buy 30% of what's left of Supervalu, at $4 a share. The stock has lately traded at a little over $3.
Lubert-Adler, a nationwide real estate fund, run by veteran real estate dealmaker Dean Adler and investor, Valley Forge Casino owner and Penn State sports donor Ira Lubert, invests money for the Pennsylvania state pension funds and other big institutions. Lubert-Adler officials declined to comment, citing confidentiality agreements.
What if a turnaround doesn't work? In the late 2000s Lubert Adler purchased the ailing Mervyn's department store chain, paid itself millions of dollars in dividends, and shut the chain, idling workers; a Delaware court later ordered the fund to repay the chain's creditors much of the money it had removed, but cofounder Lubert said the firm still profited.
"California's different. It's growing with the immigrants. Philadelphia's not," said Robert Costello, a onetime meatcutter who now owns Costello Capital Management in Huntingdon Valley. "This isn't a union issue. It's happening for one reason: real estate.
"Look at that Acme on Red Lion Road. They opened in 1991, a new model, prototype store, back when it was American Stores, and they haven't renovated it since. They don't reinvest. Then look at the BJ's Club across the railroad tracks. Bigger store. The parking lot is jammed on weekends. It's ten deep every aisle. This is going to be like Eddie Lampert with Sears and K-mart. They'll sell it little by little. They'll get rid of stores where they can't sell high-end value-added stuff. In five years if they still own it they'll have maybe 50 stores.
"It's a good thing for consumers. It's not so good for employ[ees]. Though they will be able to get a job at Giant or Costco, maybe." Nationally, Supervalu has struggled with competition from Wal-Mart and other discounters.
Malvern-based Acme, until recent years the largest Philadelphia-area grocery chain, has been saddled with high transportation costs from its Lancaster County distribution center and increased expenses from its unfunded pension and healthcare commitments for its aging workforce and retirees. In recent years Acme has closed stores and ceded local market share to Shop-Rite, Giant and other rivals.
More about Acme's and SuperValu's recent troubles from my Inquirer colleague (and new mom) Maria Panaritis here and here.
ACME is by far the most overpriced outside the yuppie chains of Whole Food/Trader Joe's.— DoctorLoads- This is no surprise to me. I live in Bucks County and there is an Acme and Shop Rite on opposite sides of the road. Acme prices are way off the charts compared to Shop Rite. They have been that way for years. Acme is salvagable. Path Mark has stayed open after a hostile take over in 1986 and being sold in 2008. Prices today are insane. Walmart, Sams, BJ's, etc... have really jumped in their prices but like Superfresh, Acme has caused their own demise. I wish them well.— Bob H
- Where will Wiley Coyote shop? The Road Runner must be on the Board of this PE firm!— MisterNascar
- I hope the workers don't get the shaft. I'm sorry to hear this; Acme is my favorite market. In there today.— Noname4me
- The Obama economy.— Disco Dave
- Some comments on here that were insightful which is incredibly rare on Philly.com ....
Despise the fact that because of how corporate debt is treated by our tax code and bankruptcy system that these PE buyers will make out regardless of not if they actually turn around any of these businesses. Completely against what should happen but does all the while the PE guys in most cases risking very little/almost none of their own money. Finance is consuming the productive elements of the American economy whole and if this keeps up for another decade or so we are headed to a country where there will largely a relatively small group of haves (maybe 20% but likely smaller) and rest will be have nots.— PhillyGuy77 - I'm going to love acame until I die! This is sad news, and I saw it coming.
- People, therefore businesses, are leaving Philly for the obvious reasons: Terrible schools, Crime and political ineptitude and corruption.— joedog
- I would not be suprised if my local ACME closed. Not that it is a big loss to the community. There are many other better options to shop at that provide a clean store, a good selection of products, a helpful staff and resonable prices. My local ACME is the example of why they are dying. A snotty hostile staff, it is filthy, and expensive.— Wildman Bill
- My guess is that the union contracts will be the first to go.— Paul Deon
- Philadelphia area shoppers heads would spin if they ever stepped foot into a Harris Teeter. Store are clean and well designed, renovated about every 6 years. Great selection and prices and efficient helpful employees.— arm320
- After reading most of the comments in response to the buyout of Acme I have come to the conclusion that not only don't most people not know what they are talking about, they are very hateful and resentful. Being an employee of the aforementioned ACME markets I don't understand how people can be so glib with other people's livelihood. Yes I am a member of a Union and collectively bargain for a fair or "living wage". Did union people invade your homes? make fun of you when you were children? What is the deal?
Do not be fooled. If the Unions go all will suffer as people will be forced to work for the lowest wage possible and the highest prices available. The government will have to bail these people out that don't have jobs. There will be more people with less money so they won't be able to buy things and it will drag the whole economy down.
Labor is the first cost cutting, profit making tool in the old business toolbox. It is the easiest and the most immediately gratifying solution to profit. The other methods require creativity, intelligence, and hard work. By all means lets give the rich the competitive advantage when it comes to making money. They need the help.
— michaelduska
