And the winner of the Kings/Balducci’s auction is…Acme Markets. The large division of Albertsons was deemed the successful bidder in yesterday’s bankruptcy auction to sell a package of 25 Kings Food Lovers Markets and 10 Balducci’s units in New Jersey, Connecticut, New York, Maryland and Virginia. The bankruptcy auction (which was held virtually) began at 10 am with stalking horse bidder, hedge fund TLI Bedrock, affirming its $75 million bid to acquire the upscale Parsippany, NJ-based merchant. Acme then followed with a blockbuster bid of $96.4 million for 27 stores (19 Kings, 8 Balducci’s). The two other bidders, who qualified by submitting court-approved offers by October 9, and reportedly submitted bids for a much smaller batch of stores, did not counter Acme’s bid and shortly thereafter the Malvern-PA based unit (part of Albertsons’ new Mid-Atlantic division) was confirmed as the new owner of Kings and Balducci’s.
There are some contingencies to clear before the deal can be finalized. Foremost is clearance from the Federal Trade Commission which will review the deal and check for store overlaps and other issues that may be deemed anti-competitive. If you can predict the outcome of recent FTC rulings such as Kroger’s 2014 purchase of Harris Teeter and Acme’s own 76 store purchase of A&P units in PA, NJ, NY and CT in 2015, which both resulted in no store divestitures, then Acme should be in good shape for several reasons. First, Acme has agreed to keep the current unionized store workforce in place. It can also provide the FTC with the fact that Acme, a conventional supermarket, and Parsippany, NJ-based Kings/Balducci’s, a gourmet-style merchant with smaller footprints, are differentiated. And as Kroger noted in their presentation to the FTC in 2013, the true competitive nature of any market must be viewed in its totality. That means any review should include the competitive presence of club stores, drug chains, convenience stores, dollar stores, mass merchants and even e-commerce who are selling grocery items in any given market.
“We look forward to welcoming Kings Food Markets and Balducci’s Food Lover’s Markets and the gourmet expertise they are known for into our family,” said Jim Perkins, Mid-Atlantic division president. “Our company has a history of managing small, differentiated chains that offer an elevated experience, like Andronico’s and Haggen in the Western U.S. When we leverage their team’s expertise and continue to deliver what their customers want, these stores can thrive. We are excited to add these two premium, gourmet banners to our East Coast operations, and plan to continue to operate the stores as Kings Food Market and Balducci’s Food Lover’s Market, respectively.”
One of the key incentives for Acme to enter the bidding arena in the first place was the relationship that it and Kings had with the United Food and Commercial Workers. In particular, one UFCW Local (360) whose members are part of a multi-employer pension plan that is currently about $60 million underfunded. The only two retailers that remain in that plan are Kings and Acme (other retailers who have gone out of business or sold their stores were also previously part that plan). If TLI Bedrock were to acquire Kings/Balducci’s and negotiate a new separate plan (which the hedge fun tried to do), Acme would be the only retailer supporting that pension fund with nothing to show for it.
With Acme’s successful bid it will be the only retailer in the Local 360 pension plan, but it now will potentially add 27 new stores to its portfolio, many in new demographically favorable markets that offer Acme the opportunity to highlight its fresh food prowess.
In a statement from John T. Niccollai, president of UFCW 464A, one of the five unions that represents Kings and Balducci’s clerks and meatcutters, the veteran labor leader said, “The Local union views the acceptance of Acme’s bid as a positive for our brothers and sisters from Kings. We will be dealing with a company run by supermarket operators as opposed to investors and, further, we presently have an excellent working relationship with the Acme company executives and field supervision.”
When Acme assumes ownership of Kings/Balducci’s it will service those stores from its distribution center in Denver, PA which also recently incorporated the warehousing and logistics of sister firm Safeway/Eastern. Kings/Balducci’s has been supplied by Wakefern Food Corp. since 2014.
To review the course of events that led up to the auction, let’s begin on August 23, when Kings/Balducci’s owner KB US Holdings (part of Qatar-based GSSG Capital), filed for Chapter 11 bankruptcy protection.
At that same time, it was announced that New York private investment firm TLI Bedrock, which offered $75 million for the regional chain and was deemed best bidder, was officially granted stalking horse favorable status by the U.S. Bankruptcy Court (Southern District of New York) prior to a formal auction of the retailer’s stores.
Additionally, KB had obtained a commitment for approximately $20 million in debtor-in-possession (DIP) financing from its existing secured lender, Whitehorse Capital Management LLC.
TLI Bedrock, which had a 30-day window of exclusivity to negotiation with Kings/Balducci’s five UFCW labor unions (Locals 342, 360, 371, 1464A and 1500) that began on July 13 to to hammer out potential changes in existing labor contracts and pension funds, failed to reach agreement. TLI Bedrock termed the bargaining as an attempt to “modify a few discreet, minimal and limited” aspects of their labor agreements. The unions saw it differently especially when the hedge fun tied to create a new annuity-driven pension plan in attempt to especially separate itself from the large shortfall in its largest plan with UFCW Local 360.
Union officials told us that despite the significant shortfall in the Local 360 plan, they were wary of a new owner who was seeking more than “moderate” change. One union official also said that he was not confident that another new private equity owner without supermarket experience was capable of leading Kings and Balducci’s (prior to KB US Holdings, the retailer was controlled by new York investment firms Angelo Gordon & Co and MTN Capital). About 1,900 of the retailer’s approximately 3,000 associates are unionized.
Kings/Balducci’s challenges date back several years. And while more upscale retailers have entered Kings’ marketing area (primarily Central and Northern New Jersey) over the past 15 years (including Wegmans, Whole Foods, The Fresh Market and more upscale ShopRites, the market leader), many of Kings problems have been created by increasing debt.
In its most recent filing for the 52-week period ended July 25, 2020, sales at its then-35 stores were approximately $590 million, but the retailer posted an $8.6 million loss even during the COVID pandemic when virtually all food retailers experienced very healthy sales and earnings. However, pre-COVID sales were soft, and the huge financial obligations Kings faced prevented the upscale merchant from adequately investing in its operations. Kings debt level is currently $114.9 million.
Beginning in March 2019, Kings/Balducci’s has been working with investment advisor PJ Solomon to explore its sales options. After a prospectus was issued, PJ Solomon said it had contacted 114 potential purchasers, 67 of which signed non-disclosure agreements enabling them to receive further information
“Kings possesses wonderful locations and is very good at marketing its image,” said a senior VP for a New Jersey-based retailer that competes against Kings. “But for many years they have not been competitive on price. When Kings was the only high-end, perishables-oriented retailer in their marketing area, they dominated that niche. But new retailers who offer many of the same products and services and are larger in size have penetrated the market in recent years, and when you couple that with lack of adequate financing with several ownership groups, you can see how Kings has struggled.”