Mega to Seek Protection From Creditors for Dr. Baby Unit

Move comes as parent Alon Blue Square seeks to calm bondholders.

Ofer Vaknin

Dr. Baby, the baby supplies chain of the embattled retailer Mega, will seek court protection from creditors, making it the second Mega business to take that route, TheMarker has learned.

The move comes as Alon Blue Square, Mega’s parent, sought to calm bondholders on Thursday by detailing the extent of layoffs and vowing not to reschedule its debt to them. But Alon Blue Square CEO Avigdor Kaplan declined to discuss the future of Mega, Israel’s second-largest food retailer.

“We are continuing our wide-ranging and radical efficiency program – 120 staff at Mega headquarters have already been fired out of 370,” Kaplan told a meeting of bondholders, revealing for the first time the number of layoffs at its head office. “We’re asking only for a period of ‘industrial quiet’ from bondholders. We will repay everything on time,” he assured them.

The supermarket, which is struggling with some 1.3 billion shekels ($340 million) in debt and owes bondholders 380 million shekels, has been closing and selling stores, laying off staff and negotiating a rescue plan with creditors. Alon Blue Square shares – which have tumbled by more than 50% in the past month – fell 6.5% to close at 4.22 shekels on Thursday.

“Mega adopted a mistaken strategy over the last four to five years, when it took a major foray into discount stores and started the You chain,” Kaplan said. “You have to understand that you don’t rehabilitate an enterprise by changing the brand name, but through internal processes of wide-ranging efficiency.”

Although promising timely payments to bondholders, Kaplan said that Israel Discount Bank, which is owed about 50 million shekels, would have to wait for a payment due this week. Like other bank lenders, Discount will have to wait for any repayments until the end of September and a debt-rescheduling agreement, he added.

Mega’s Dr. Baby unit, which counts 14 stores, was one of a string of unsuccessful retail investments that Alon Blue Square made in recent years. The chain posted an operating loss of 16 million shekels last year, on turnover of 59 million shekels.

Dr. Baby would be Mega’s second retail business to seek court protection after Eden Teva Market, its 51%-owned unit that sells organic and health foods. On Wednesday, Mega told the court it would not be able to cover the 60% of Eden Teva Market’s debt to suppliers, contrary to what it said two weeks ago when it first turned to the court.

Mega said its finances had deteriorated so badly in the past two weeks that it could no longer keep to its original plan.