By Peg Brickley
Tesco PLC's (TSCDY, TSCO.LN) Fresh & Easy Neighborhood
Markets will go on the bankruptcy auction block Nov. 19 with a
starting offer from Yucaipa Cos., a private equity investor that
will keep about 150 of the grocery stores open and operating.
Judge Kevin Carey said he would sign off on bid rules Thursday
at a hearing in the U.S. Bankruptcy Court in Wilmington, Del.
British retailer Tesco is seeking to exit the troubled U.S.
venture in a deal that promises to preserve some 4,000 jobs. It
placed the chain under bankruptcy protection Sept. 30 and is
pushing for a sale in advance of the holidays.
The official committee of unsecured creditors decided not to
oppose the rushed bankruptcy auction plan, but may oppose the sale,
said Pachulski Stang Ziehl & Jones's Jeffrey Pomerantz,
attorney for the panel. According to Mr. Pomerantz, Yucaipa is
negotiating to amend the terms of its offer, and creditors are not
happy.
"We don't support any changes to the deal," he said. Talks are
going on that may result in a joint Chapter 11 plan backed by the
creditors and the company, he said, but when it comes to the sale,
creditors are determined to hold Yucaipa to the terms spelled out
in the "stalking horse," or opening bid, agreement.
Yucaipa could not immediately be reached to respond to the
statement from the lawyer for the creditors' committee, a key
player in U.S. corporate reorganizations.
The company worked to stay current on its trade bills in the
months leading up to the bankruptcy, but landlords are bracing for
pain from leases that are not going to be picked up at the auction.
At the time of the bankruptcy filing, 167 stores were in operation,
but 97 others had been idled.
The British retailer that owns Fresh & Easy is also feeling
some pain. In court papers, Tesco said it had plunged $3.3 billion
into the venture, which launched in areas that were soon hit by the
collapse of the housing market: Arizona, California and Nevada.
Tesco is lending Yucaipa $120 million to complete the
acquisition of a whittled-down version of the chain, which has been
racking up losses that average $22 million per month. Yucaipa's
offer includes warrants that would allow Tesco and Fresh &
Easy's creditors to retain a stake in the post-bankruptcy
operation.
Tesco has agreed to provide Yucaipa an $8.5 million breakup fee
if Fresh & Easy pursues a transaction other than a sale as a
result of the bankruptcy auction. Under the rules approved
Thursday, if someone outbids Yucaipa at the auction, the private
equity investors stands to collect a $1.5 million breakup fee from
Fresh & Easy.
Write to Peg Brickley at peg.brickley@wsj.com
(Dow Jones Daily Bankruptcy Review covers news about distressed
companies and those under bankruptcy protection. Go to
http://dbr.dowjones.com)
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