Tesco Puts Fresh & Easy Into Bankruptcy
Published in CSP Daily News
Allows chain to clean up store portfolio; Yucaipa will be lead bidder at auction
EL SEGUNDO, Calif. -- Tesco Plc put its failed U.S. small-format grocery store chain Fresh & Easy Neighborhood Markets Inc. into bankruptcy on Monday as part of a plan to sell most of the 167 stores to Yucaipa Cos., a private-equity firm led by billionaire Ron Burkle, reported Reuters.
"Today's filing is simply the next step in the restructuring process to sell the business to The Yucaipa Cos. and will have no impact on our customers shopping experience. It's business as usual as we continue the transition to new ownership," Fresh & Easy spokesperson Brendan Wonnacott said in a statement provided to CSP Daily News.
A unit of Tesco will end up with a 22.5% stake in the Yucaipa affiliate that acquires the grocery store chain, said the report, citing documents filed in the U.S. Bankruptcy Court in Delaware.
The proposed sale to Yucaipa will serve as a leading bid in a court-supervised auction, which Fresh & Easy said it plans to hold on Nov. 11. The company asked the court to schedule a hearing on Nov. 13 to approve the sale.
Bankruptcy will allow El Segundo, Calif.-based Fresh & Easy to reject or renegotiate leases that are no longer economical.
The company's biggest creditor is Tesco, which it owes $738 million. Tesco has taken a $1.6 billion writedown on the U.S. chain.
Fresh & Easy also owes $18.4 million to vendors, said the report.
The Chapter 11 bankruptcy filing comes as Tesco is in the midst of $1.6 billion turnaround plan. Once the envy of British retailers, Tesco has been hurt by falling profits, a costly retreat from the U.S. and Japanese markets, and revelations that horsemeat had been found in some meat products sold by Tesco and other retailers.
The case is In Re: Fresh & Easy Neighborhood Market Inc., U.S. Bankruptcy Court, District of Delaware, No. 13-12569.
The bankruptcy ends the grand entrance onto the U.S. stage of Britain's biggest supermarket chain. When Tesco launched the chain in Arizona, California and Nevada in 2006, many expected the deep-pocketed company to quickly expand to challenge the dominant U.S. food retailer, Wal-Mart Stores Inc.
But Tesco jumped into the U.S. Southwest just as the region's sizzling real-estate market began to cool, and the U.S. business never generated a profit, according to court documents.
Tesco spent $610 million in the first two years building the business, and sales eventually grew to $1.2 billion annually, according to court documents.
But the business was never able to support the top-of-the-market leases, and it was losing $22 million a month over the past year, according to the documents.
Under the proposed sale, an affiliate of Tesco will lend Yucaipa $120 million to help fund the takeover of the chain. Yucaipa anticipates acquiring and operating 150 of the chain's 200 stores.
Tesco has said the stores that are not sold will be closed.
The bankruptcy will allow Fresh & Easy the flexibility to shake up its store portfolio and shed unprofitable locations, analyst Neil Saunders with Conlumino, London, told The Los Angeles Times.
"This is vital as the chain needs to be streamlined if it is to remain viable for the new owners," he told the newspaper.
The filing allows Tesco to back out of leases before they conclude and auction off the brand's assets, which are worth $100 million to $500 million, the report said.