Market Basket: Analysts point to debtJACK ENCARNACAO
The Boston Herald
August 21. 2014 10:52PM
A debt-financed acquisition of ailing Market Basket chain by ousted CEO Arthur T. Demoulas could end up driving up the revived chain’s signature low prices — and drive off its loyal customers — according to experts who say the celebrated grocery titan will be newly beholden to creditors expecting immediate returns regardless of what it takes to nurse the company back to health.
“You spend cash on making sure that you get the ratios set and the loans repaid, and that’s cash that is simply not available to be flexible enough to address the competition from Shaw’s down the road, who will smell blood in the water,” said Bob Reynolds, a former executive at the Safeway grocery chain and a consultant who advises companies on acquisitions.
“It hamstrings the flexibility of the operation to do those new and special things which are important not only to bringing an operation back, but to fighting off competition,” Reynolds said.
The Herald reported this week that a key factor that has emerged in sales talks between Arthur T. and his rival cousin — majority shareholder Arthur S. Demoulas, who controls a 50.5 percent stake worth an estimated $1.5 billion — is how much the former CEO will pay up front, and how much his unknown backers would put up.
The backers, sources told the Herald, would want assurances Market Basket revenue can return to a point where the debt obligations can be paid.
Yet the 71-store chain has been hemorrhaging millions a day since managers and workers walked out in protest of Arthur T.’s ouster more than a month ago, and now several of its vendors have stopped doing business with the company.
They have been joined by thousands of boycotting Market Basket customers who also demanded Arthur T.’s return.