Mega Board Meets in Last-ditch Effort to Buy Time to Sell the Chain

Directors debate whether to seek delay in paying suppliers or court protection from creditors.

Ofer Vaknin

Mega’s board of directors met into the night Thursday night in a last-ditch effort to buy time to find a buyer for the ailing supermarket chain, by asking suppliers to delay payment or by going to court to seek protection from creditors.

The emergency meeting came as shelves and freezers at the chain’s supermarkets were gradually emptying of goods as food manufacturers and importers restrict deliveries of new stock or stop them entirely.

Directors at the board meeting were debating whether to ask suppliers to delay taking a 50-million-shekel ($12.7 million) payment due today to cover this week’s deliveries, or go to court, probably on Sunday. Either way, suppliers would not get paid.

Mega and its parent company, Alon Blue Square, have been holding talks about selling the entire business or individual stores, but talks have been shadowed by concerns that the chain might effectively shut down before any agreement is reached.

The latest potential buyer to emerge is the discount food retailer Yeinot Bitan. Nachum Bitan, the chain’s principal, has met with Avigdor Kaplan, CEO of Alon Blue Square, over the last several days, but has yet to make a firm offer.

“Right now there are big gaps between Mega and Bitan on almost every issue, but Mega understands that they need a deal or they will go into receivership,” said a source close to the negotiations, who asked not to be named.

Other potential buyers are the supermarket chain Tiv Taam and an investor group led by Yossi Sagol, whose family controls Keter Plastics, and Eran Meital, a former Delek Real Estate CEO.

But the buyers have conditioned any deal on winning an agreement with suppliers about debts, diluting the 33% stake in Mega that its employees got as part of a debt accord last summer and an agreement from Alon Blue Square to cover any costs connected with future class actions.

While Mega’s problems festered, Alon Blue Square got some potential relief after Big Shopping Centers and Mega Or Holdings offered to buy its real estate subsidiary Blue Square Real Estate, which acts as landlord for many of Mega’s supermarkets.

Big and Mega Or offered 1.65 billion shekels for Alon Blue Square’s 58% stake in the company, which was 10% more than its shareholders’ equity and 32% above its market value on the Tel Aviv Stock Exchange. The offer expires on Monday and would be subject to regulatory approvals and due diligence, Alon Blue Square said.

News of the offer lifted Blue Square Real Estate shares 3% in an otherwise down market yesterday, to a close of 111.50 shekels. Alon Blue Square shares jumped more than 34% to close at 1.30 shekels.

Earlier yesterday, a meeting with suppliers to the chain’s approximately 125 stores to seek a delay was abruptly canceled. Mega said it decided to cancel the meeting in favor of one-on-one talks, citing antitrust problems to a general agreement.

But remarks by Shraga Brosh, president of the Manufacturers Association of Israel, under whose aegis the meeting was supposed to take place, indicated that suppliers were reluctant to accept any delay and wanted Alon Blue Square to inject money into Mega.

“For the sake of our employees and Mega’s employees, and in order to solve this crisis, we expect Mega’s owners to dig deep into their pockets,” Brosh said, speaking on behalf of the suppliers. “We also have employees, shareholders and a public that has invested in us through the bourse and they expect us to act responsibly.”

Mega reportedly proposed to suppliers, who fear they will be left holding unpaid bills if Mega goes into receivership, that they agree to a late payment today, for this week’s deliveries, while promising to pay them on time for next week’s. But it faces legal obstacle to any deal, among other reasons because all the suppliers would have to accept the offer.