Tesco Plc (TSCO)’s Fresh & Easy Neighborhood Market Inc. filed for bankruptcy so it can sell itself at auction with an affiliate of billionaire Ron Burkle’s Yucaipa Cos. as the lead bidder.
Fresh & Easy today listed debt of as much as $1 billion and assets of as much as $500 million in a filing in U.S. Bankruptcy Court in Wilmington, Delaware.
Under the proposed deal, a Tesco affiliate would loan the Yucaipa affiliate $120 million to help fund the takeover. Tesco would get warrants to buy as much as 10 percent of the equity in the reorganized supermarket chain. Should Yucaipa win a proposed court-sanctioned auction, a Tesco unit would retain 22.5 percent of the equity in the reorganized chain.
Fresh & Easy blamed its failure on the economic downturn that began in 2008, especially falling real estate prices in California, Nevada and Arizona. To build the chain quickly in 2006 and 2007, the height of the U.S. real estate boom, Tesco spent $610 million.
“Many of Fresh & Easy’s leases are substantially above market, relative to its competitors,” Fresh & Easy Chief Financial Officer James Dibbo said in an affidavit filed in court today. “The effect of the real estate market was especially pronounced.”
Fresh & Easy says it owes Tesco $738 million. Tesco, based in Cheshunt, England, is the U.K.’s biggest retailer. Fresh & Easy never made a profit and lost an average of $22 million a month in the 12 months ending in February, Dibbo said.
Under the U.S. Bankruptcy Code, Tesco can cancel unwanted leases easier than outside of court protection and hold an auction for Fresh & Easy’s assets. As the stalking-horse bidder, Yucaipa’s affiliate would have the opening bid. Should no other offers come in, the company would be required to buy Fresh & Easy.
Yucaipa has agreed to take over about 150 of the markets along with its production facility in Riverside, California, where the company produces meals under the Fresh & Easy brand. The company employs more than 4,000 people.
Frank Quintero, a spokesman for Burkle in Los Angeles, didn’t immediately respond to an e-mailed request for comment on the buyout.
The case is In re Fresh & Easy Neighborhood Market Inc., 13-bk-12569, U.S. Bankruptcy Court, District of Delaware (Wilmington).
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