Acme parent's moves shake up shareholders, union

Union president Wendell Young IV says that although bankruptcy does not appear imminent, concern is rising. JOHN COSTELLO / File Photographer
Union president Wendell Young IV says that although bankruptcy does not appear imminent, concern is rising. JOHN COSTELLO / File Photographer
Posted: July 14, 2012

The future of thousands of Acme Markets workers was on the minds of union leaders Thursday after corporate parent Supervalu Inc. shook up shareholders with plans to "explore strategic alternatives" — corporate parlance for measures that often include courting buyers for the company.

The $36 billion corporation, which has been struggling beneath the weight of $6.3 billion in debt, also said it would suspend its quarterly dividend to shareholders and cut $250 million in costs over the next year and a half, beyond the $75 million it hopes to slash by the end of February.

With sales at its stores continuing to fall and hurt profits, executives said they remained committed to the costly endeavor of slashing retail prices at Acme and the other supermarkets it owns across the country. But the plan to explore a possible sale of assets was greeted with wariness within the union that represents its Acme workers.

"It doesn't appear that bankruptcy is imminent any time soon," said United Food and Commercial Workers president Wendell Young IV, whose Local 1776 represents about 3,000 of the roughly 10,000 Acme clerks working in stores across Southeastern Pennsylvania, New Jersey, and northern Delaware. "But, clearly, if the direction of this company's finances doesn't change to the positive, that could always be a potential in the future."

"I'm concerned about the company's condition — that's no secret," said Sam Ferraino, who as president of UFCW Local 1360 represents about 2,000 unionized clerks at stores in South Jersey and parts of Bucks County. "Our last round of negotiations was tough and it was all because the company was in bad shape. I'm not optimistic about the future from what I've seen, the changes I've seen."

There was no guarantee that a sale of any or all of Minnesota-based Supervalu's assets would result from its move to hire Goldman Sachs and Greenhill & Co. for the strategic review.

The very fact that executives announced publicly their intention to potentially sell assets, however, was viewed as a major step for a company whose sales figures have been taking a beating in recent years as lower-cost competitors have lured cost-conscious consumers with newer stores and more aggressively priced merchandise.

Indeed, a stated goal of the various moves was to free up cash so that Supervalu could further reduce prices of groceries at its stores, an area where the company has tried to invest despite pressure from shareholders anxious about diverting profits toward price reductions.

The company would not disclose what, if any, plans it had for Acme or other particular chains it owns. But in a letter to employees after the corporation's release of quarterly financial results Wednesday, Supervalu president and chief executive Craig Herkert hinted that any and all options would be considered.

"This review is not something we take on lightly," he wrote. "However, given the responsibility we have to you and our other stakeholders, we have to consider all options to increase the overall value of the company. Our review of strategic alternatives will be broad-based and include looking at the sale or other disposition of all or part of the company."

The moves announced by the company were so major that Supervalu's stock price tumbled when markets opened Thursday, a day after analysts grilled executives with questions during a conference call. Shares closed down 49 percent Thursday, to $2.69.

One analyst had asked Herkert whether bankruptcy was "100 percent off the table as a strategic option." Herkert replied: "Yes, it's not reviewed."

Union officials in the Philadelphia region, where the majority of the company's Mid-Atlantic Acme supermarkets are located, were on guard following the news.

Young, whose local began negotiating new contracts with Acme earlier this year, said he was worried for his members but felt that the vast real estate holdings of Acme Markets, coupled with its presence in neighborhoods that many competitors would covet, would make it an attractive asset for potential sale or investment by a partner.

"Any time a company is not doing as well as we would all like it to do and there's talk of new ownership, we worry, because that could lead to store closings and people out of work," Young said. "But Acme still has a significant part of the market share in Philadelphia; there's a lot of value in that real estate."

Supervalu spokesman Michael Siemienas said the company remained committed to continued reducing of prices at its chains, but it had not announced when it would move more aggressively to do so within its Acme holdings. The company also hopes that by refinancing several billion dollars of debt (it used the value of some real estate holdings to arrange better credit terms as part of this week's announcement), Supervalu would also aim to pay down $450 million to $500 million of debt by the end of February.

"Supervalu is financially stable," Siemienas said. "We have strong cash flow from operations in excess of $1 billion and ample liquidity to meet our obligations."

Contact Maria Panaritis at 215-854-2431 or at mpanaritis@phillynews.com or on Twitter @panaritism.

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