Sunday, December 21, 2014

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?

Acme Markets´ president Dan Sanders (2nd from RIGHT) is holding court in the Acme Super Market in the Concord Town Center in Concordville with his management team of (from left) Ajay Kanwar, VP of Merchandising; Tom Miller, Senior VP of Operations, and Don Croce, VP of Sales (right).  They were conducting a standard store tour.   ( Clem Murray / Staff Photographer )
Acme Markets' president Dan Sanders (2nd from RIGHT) is holding court in the Acme Super Market in the Concord Town Center in Concordville with his management team of (from left) Ajay Kanwar, VP of Merchandising; Tom Miller, Senior VP of Operations, and Don Croce, VP of Sales (right). They were conducting a standard store tour. ( Clem Murray / Staff Photographer ) Clem Murray / Staff Photographer

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.

Joseph N. DiStefano
About this blog

PhillyDeals posts raw drafts and updates of Joseph N. DiStefano's columns and stories about Philly-area finance, investment, commercial real estate, tech, hiring and public spending, which he's been writing since 1989, mostly for the Philadelphia Inquirer.

DiStefano studied economics, history and a little engineering at Penn, taught writing at St. Joe's, and has written the book Comcasted, more than a thousand columns, and thousands of articles, and raised six children with his wife, who is a saint.

Reach Joseph N. at JoeD@phillynews.com or 215 854 5194.

Joseph N. DiStefano
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