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.
I agree, this chain is really messed up. Small, crowded stores; prices much higher than competitors; poor customer service; and a distribution center in Lancaster County (right next to the US 222 Turnpike exit) that is near none of their stores and requires expensive Turnpike tolls to reach its market.— MASTERNC- After that insight, you should write a book on business...lol — Save_the_space
- I didn't realize the problem with the distribution center. That's interesting.
All I know is, Acme prices aren't at all competitive, they don't have anything particularly special about their food, and the hours (at least at my local store) are rather limited. I have no reason to use Acme when I've got a very good SuperFresh and an excellent FreshGrocer near by, and my FreshGrocer is 24-hour.
I feel sorry for the employees, though, and I feel sorry too for the shopping centers where Acme may be something of an anchor -- where smaller stores may be impacted by Acme closings.— CurrerBell - I didn't realize the problem with the distribution center. That's interesting.All I know is, Acme prices aren't at all competitive, they don't have anything particularly special about their food, and the hours (at least at my local store) are rather limited. I have no reason to use Acme when I've got a very good SuperFresh and an excellent FreshGrocer near by, and my FreshGrocer is 24-hour.I feel sorry for the employees, though, and I feel sorry too for the shopping centers where Acme may be something of an anchor -- where smaller stores may be impacted by Acme closings. (HTML deleted) — CurrerBell
- ACME's bones will be picked clean and the rest will be discarded.— kevgret
- This time I won't fault the Unions and no way is this Obama's fault. Seems like the chain would have failed no matter if the workers were union or not or who is in office.— Niko
- Unfortunately the Walmart model works. Lifetime employment and lifetime pensions, which never were sustainable, are failing. These companies are just realizing it now.— Phillies2008WSChamps
- The best hope for the american worker is that china unionizes, that way their labor costs will be just as high as ours.— rmg154
- capitalism is cannibalism.— Phillynovafreedom
- MasterNc...the reason that distribution center is waaay out in Denver, PA, is specifically because it is out of reach from the unions. Unions are so ridiculously overpriced, that this company actually calculated it was less expensive to ship products, nightly, to hundreds of stores, from outside of the market than it was to pay artifically inflated union wages at a distribution center within the Philly area/ market.
Second, I do not totally agree that Acme will be sold off in parts. The buyer currently & successfully operates stores in the mountain region of the country. Acme may hold some value as a retailer provided they are allowed to operate autonomously within their market and can shed the artifically inflated union costs. If out of market decision making and unions remain in place, Acme is total toast and will get run over by more effective retailers.— kelprod2-freemarket - It's not the unions, it's lousy management, particularly of the supply chain. They have invested in some beautiful stores, but then they are always out of stuff and their selection is terrible. The prices are nuts - they put stuff on special so it's dirt-cheap, then jack up the price of other stuff. People are willing to pay more if they get better service, selection, quality, but Acme just doesn't deliver.— dartvader
- CD75, I think you're missing the point regarding the pension. Notice the "unfunded" portion. That means that the company did not make regular contributions to the pension fund (which they should have done), and now have to put a lot more into the fund to keep it solvent than they would have needed to otherwise. Why would a company do this? To make themselves seem more profitable during the quarterly earnings report. Take a peek at the 40-K statements and see what the yearly contributions from the company were. Odds are, you'll find that it was very small against what was expected. Short-term, it's not a bad idea, but go more than 3-4 quarters doing that and it can quickly become a problem. Go a few years without funding the account, and you're left with a major debt to pay that will suck up a lot of your earnings. Again, it was short-sighted business decisions which created that particular mess.— Yoda117
- As others have said, these private equity firms are going to take a machete and carve up this dead horse known as Acme and sell the properties. There is no other reason why they would do this. Seeya Acme, seeya jobs.— The Baron
- High transporation costs from the distributin center???? They moved it out there due to oppressive costs in Philly. Even with the higher costs of fuel, the lower taxes alone cover the difference. The facility is non-union, modern, and close to moste of the suppliers. It is also closer than most of its competitor's facilities. If they do not have a problem, why should Acme?
This sale is about an older company that has not been able to get its costs under control while being squeezed by competitors.— Dutch-wayne - High prices, poor customer service, dirty stores and poor selection. Just where everyone wants to shop. The writing has been on the wall for ACME for years. Now they will finally die off. There are other stores that are clean, priced well below ACME, with helpful staffs and a good selection of products.— Wildman Bill
