A Suffolk County Superior Court judge has cleared the way for a $300 million payout to Market Basket shareholders, a move that depletes 60 percent of the grocery chain’s available cash and will forever change how the company operates, according to President and CEO Arthur T. Demoulas.
He was unsuccessful in convincing Judge Judith Fabricant that his cousin, Arthur S. Demoulas, has stacked the company’s board of directors in violation of a previous court order requiring that three directors on the seven-member board be independent of the Demoulas family.
Ken Ficek, a 32-year employee who is an assistant manager at the Storrs Street Market Basket in Concord, said employees expected the Boston, Mass., court decision would not go Arthur T.’s way.
“We kind of figured it was going to happen,” he said. “Most of us are worried about our profit-sharing. It’s kind of up in the air right now.”
Joe Lessard, a 20-year employee who is a full-time aisle clerk at the Fort Eddy Road store in Concord, said he can’t understand why board members of a profitable, debt-free company want to reverse course.
“It’s kind of nerve-wracking,” he said. “This is a company that has no debt and they want to go into debt. It’s kind of alarming, you know?”
At issue in the lawsuit was the election of Keith O. Cowan, formerly a representative of the Arthur S. Demoulas faction on the board, to one of three seats that is supposed to be held by a director without any family ties. Arthur T. maintains that Arthur S. now controls the board because he controls one of the three directors who is supposed to be independent.
Cowan, a wealthy Georgia-based attorney and retired business executive, has said at previous board meetings that it is the prerogative of the nine family members who hold shares in the company to demand cash. “It is incumbent on the board to help shareholders find the path to liquidity if that is the desire of the shareholders,” he said at a July 18 board meeting, as hundreds of Market Basket employees protested outside in support of the incumbent CEO.
Fabricant, in a ruling issued Tuesday, denied the request by attorneys for Arthur T. Demoulas for an injunction blocking the $300 million dividend payment and other actions of the new board, pending the outcome of his lawsuit over Cowan’s appointment.
“If Cowan agrees with Arthur S. based on his own independent judgment, then the two will vote the same,” she wrote. “The pattern does not indicate that Arthur S. controls him.”
Fabricant was not convinced that Arthur T. will prevail at trial, nor did she agree that he would suffer imminent or irreparable harm from the board’s recent decisions to issue the dividend, establish a line of credit and hire an executive recruiting firm that many employees fear will lead to the ouster of the popular company president.
“Issuance of an injunction would impose real and substantial harm on the defendants,” she wrote. “Aside from delaying distribution of funds, it would deprive defendants of corporate democracy.”
A spokesperson for Arthur T. said he is disappointed by the ruling.
“The court’s decision is based on the legal definition of irreparable harm,” wrote Justine Griffin, senior vice president at Rasky Baerlein Strategic Communications. “But this is a money grab by some of the shareholders and is the very definition of irreparable harm from a business perspective. Taking out 60 percent of the cash on hand from the company will break Market Basket’s proven business model, and forever change how the company operates and grows.”
The two cousins have been in a struggle for control of the company, built by their fathers, for well over two decades. Arthur T. enjoyed majority support on the board since his appointment as CEO in 2008, until a bloc of family members switched their votes to align with Arthur S. at the company’s annual meeting in June.
“Arthur S. Demoulas showed little doubt that with the board reconstituted, his vengeance was at hand,” wrote attorneys for Arthur T. in seeking the injunction. The case is now likely to proceed to email@example.com