Potential Owner Backs Ralphs Managers : Spinoff: But developer Edward J. Bartolo expresses concern about a bankruptcy plan that would give it a 60% stake in the grocery chain.
Ralphs Grocery Co.’s current management won a strong endorsement Tuesday from the big shopping center development company that would gain control of the supermarket chain through a proposed bankruptcy reorganization.
But a spokesman for the development firm, Edward J. DeBartolo Corp. of Youngstown, Ohio, also expressed concerns about unspecified parts of the reorganization plan.
The plan was filed late Monday in U.S. Bankruptcy Court in Cincinnati by Ralphs’ corporate parents--Federated Stores and its Federated Department Stores and Allied Stores retailing units. All of the concerns are owned by Toronto-based Campeau Corp.
Analysts said the DeBartolo firm’s expression of concern about the reorganization plan might simply be posturing as it prepares for months of difficult negotiations with the bankrupt companies and other creditors. At the same time, it underscored the possibility that the reorganization plan could be substantially revised or even thrown out because of pressure from dissatisfied creditors.
In fact, observers said, the proposal to spin off Ralphs and set it up as an independent, publicly held company could emerge as a stumbling block in negotiations with creditors seeking more cash for their claims against Federated and Allied. Ralphs, the only U.S. retailing unit of Campeau operating outside of bankruptcy, is considered one of the organization’s most attractive assets.
Federated Stores and its two major department store groups have operated under Chapter 11 bankruptcy protection since early last year. They filed a complicated package of financial proposals Monday to resolve $8.2 billion in creditors’ claims and bring their nine department store chains, including New York-based Bloomingdale’s, out of bankruptcy.
Most of the company’s 25,000 creditors would receive cash, notes or stock in a new, publicly held Federated-Allied organization. The reorganization plan also calls for DeBartolo to receive a 60.3% stake in the 151-store Ralphs chain, the No. 3 supermarket operator in Southern California.
DeBartolo would receive the stake in exchange for forgiveness on a $480-million loan to Campeau. The remaining 39.7% of Ralphs would be distributed to Campeau, Allied-Federated and two Campeau banks, but much of the stock would, in turn, be sold off in a public offering early next year.
“We are generally favorably inclined” toward the reorganization plan, said Richard S. Sokolov, a DeBartolo senior vice president.
He added, however, that “there are significant aspects of the plan that we’re reviewing that are causing us concern.”
Sokolov would not elaborate on his company’s concerns or what plans it might have for Ralphs. But Byron Allumbaugh, Ralphs’ chairman, said DeBartolo would make no changes in the supermarket company’s senior management, and Sokolov seemed to reinforce that point by voicing support for the company’s executives Tuesday.
Sokolov called Ralphs “an outstanding company” with “an outstanding management team.”
Ralphs, the only Campeau retailing unit in California, has posted losses since financing itself with a $400-million junk bond offering in 1988. Its net losses have narrowed, however, and its operating cash flow is considered extremely high by industry analysts.
The company’s bonds, which traded for less than 80 cents on the dollar as recently as January, now trade at around face value. They fell about 1/2 point in light trading Tuesday, in line with the overall decline in the junk bond market, said David Feinman, a junk bond trader for Jefferies & Co. in Los Angeles.
