Plan Apparently OKd to Revive Parent of 7-Eleven
The troubled parent of the worldwide 7-Eleven convenience store chain edged toward bankruptcy Tuesday, but bondholders apparently approved a quick reorganization plan that could get the company back on its feet within months.
Bondholders apparently endorsed a so-called prepackaged bankruptcy plan Tuesday, Southland Corp. officials said, although no official results were announced.
The vote came after months of abortive effort by Southland to persuade bondholders--owners of $1.8 billion in Southland debt--to agree to a buyout proposal that would have bailed out the Dallas-based company without going into bankruptcy court.
In this prepackaged bankruptcy, a company goes into federal court with a reorganization plan largely worked out and the approval of roughly two-thirds of its bondholders. With most of the issues already negotiated, a company can emerge from bankruptcy in months instead of years.
“It’s really a new lease on life if they can do this,” said Southland analyst Wayne A. Josephson at Fitch Investors Service in New York. With a prepackaged reorganization, there is “a significantly lower toll on the company in terms of expenses and declining customers.”
Under the terms of the plan, Ito-Yokado Co. would pay $430 million in cash for 70% of Southland, perhaps the biggest Japanese investment in a U.S. retailer to date.
In addition, bondholders would accept new bonds that would have only half of the face value of their old investment in exchange for 25% of the company. And the Thompson family of Dallas--Southland’s founders and principal owners--would end up with just 5% of the company.
But prepackaged bankruptcy plans are not foolproof, and analysts warned Tuesday that Southland’s problems are not necessarily over even if the prepackaged plan is indeed accepted by bondholders.
“If they go into bankruptcy court their plan may not be allowed,” said David Glatstein, president of Barre & Co. Inc., a Dallas brokerage. “You’re asking a court to rubber-stamp everything you want to do. A court’s not necessarily going to want do that.”
Bondholder approval of a prepackaged plan “is a very, very positive development for the company,” said Southland analyst Jim Bennett of R. D. Smith in New York. “The risk is that you could get a crazy nut who goes into bankruptcy court and tries to disrupt the plan, a creditor who takes a lawyer to court and tries to challenge it.”
Southland, parent of the world’s biggest network of convenience stores, has been brought to the brink of collapse largely by the huge interest payments stemming from the $4.9-billion management buyout in 1987. At the time, Southland was maneuvering to avert a takeover by Canadian investor Samuel Belzberg.
Along with other convenience-store chains, Southland was stung by stepped-up competition from supermarkets and gasoline station mini-markets. By last November, the company acknowledged that it faced a cash crisis and began working on a corporate overhaul. As part of that overhaul, it sold its 58 stores in Hawaii for $75 million to Ito-Yokado’s 7-Eleven Japan unit.
In March, Southland tentatively agreed to sell 75% of the company to Ito-Yokado. But bondholders balked at the plan. Despite an improved offer that came in ensuing months, bondholders never provided the 95% support needed for the deal to go through.
As a result, Southland and Ito-Yokado came up with a similar plan that would send the company into bankruptcy court. This plan, which was voted on Tuesday, only required the support of two-thirds of the holders of each class of bonds.
Scott A. Pearce, a franchisee with two 7-Eleven outlets in San Bernardino County and a member of Southland’s National Advisory Council, said most 7-Eleven franchisees hoped the company would stay out of bankruptcy. He expressed concern that a bankruptcy, even a prepackaged bankruptcy case, will trigger bad publicity that could hurt business.
On the other hand, Pearce said the prepackaged bankruptcy plan ensures that 7-Eleven’s suppliers will continue to be paid on time. He added that franchisees believe that Ito-Yokado’s planned investment will provide needed funds to remodel stores, increase advertising and install computerized cash registers.
“It’ll be back to the old Southland, when it was No. 1 (in the convenience store business) by leaps and bounds,” Pearce said.
John Gordon, chairman of the steering committee representing bondholders and preferred shareholders, expressed frustration that the out-of-bankruptcy buyout offer failed to win the needed 95% approval.
He called the minority who rejected the deal “dopes.” “They took money out of their pockets and out of my pockets,” Gordon said.
Still, Gordon said, the prepackaged bankruptcy is much better than regular Chapter 11 bankruptcy proceedings, which he estimated would take three years or more.
“I feel very comfortable with the prepackaged bankruptcy plan, and I’m glad we’re getting on with the show,” Gordon said.
“The business is going to be business as usual. It’s not going to affect sales. It’s not going to affect day-to-day operations. The only people being asked to take hits are the bondholders.”
