With just two hours before the deadline for filing bids to buy Mega and no offers forthcoming, the trustees for the financially ailing supermarket chain on Thursday agreed to give prospective buyers until Tuesday to think again.
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Once Israel’s second biggest supermarket chain, Mega was expected to draw at least several competing bids for the 127 stores that it still retains. The retailer won court protection from creditors who are owed more than 1.25 billion shekels ($320 million) in early January and trustees have been preparing it for sale since then.
But in recent days Eyal Ravid of the Victory chain and Hagai Shalom and Tiv Ta’am – the smaller upstart chains – pulled back as did an investor group led by Yossi Sagol, an heir of the Keter Plastics fortune, in partnership with the U.S. food retailer Kroger.
In addition, Moti Ben-Moshe – an Israeli who made his fortune in Germany and last month acquired Mega’s parent company Alon Blue Square – also appeared on Thursday to have backed out of a possible offer for Mega.
Ben-Moshe had hoped to avoid the competitive bidding process being organized by Mega’s trustees by reaching an agreement with Mega’s creditors. The trustees blocked the move by winning a court ruling that anyone interested in buying Mega had to go through the bidding process.
Sources said Thursday that Ben-Moshe had probably given up on acquiring Mega for now but that he might make another attempt through the court later.
Another prospective bidder, Ilan Sheva, who controls the produce wholesaler Bikurei Hasade, told TheMarker Thursday that he also wouldn’t make an offer by the original deadline, but might manage to if the deadline is extended. “It’s a complicated sale and we haven’t completed all the work involved concerning the workforce and real estate,” he said.
Another candidate, the discounter supermarket Rami Levy, has been preoccupied in recent days by a police investigation into accusations that executives, including Rami Levy himself, accessed the database of its cellphone unit to get personal information on subscribers.
Ehud Gindes, one of two trustees along with Gabi Trabelsi, sought to dismiss the significance of having to delay the deadline.
“Putting off the deadline for submissions by a few days to enable another two or three players to join the tender is legitimate,” he said. “If we had pressured the bidders today, we would have gotten offers from the most serious players in the Israeli retail sector, but we’re not pressuring anyone.”
Ginder said one unidentified bidder had to complete financing arrangements and the second wants to finishing lining up a partner. “There’s a lot of interest in Mega, even from people who tell the media that they aren’t making a bid – they’re still in the game,” he asserted.
If no bids emerge by Tuesday for all of Mega, as the trustees have said they prefer, then they will likely seek to sell individual stores to Mega’s rivals – a move consumer advocates and industry experts say will stifle competition.
But on Thursday, Gindes said he did not think that would happen. “I can’t imagine a situation where we receive no bids at all. We have concrete offers from all the retail chains,” he said.
But one source in the food retail sector, who spoke on condition of anonymity, said Mega would not be an easy sell.
“There are several big problems with Mega and anyone who doesn’t know how to manage a chain like this very carefully will lose money,” the source said.
He said the biggest problem is the high rent Mega is paying relative to turnover at many of its stores, mainly to its sister company Blue Square Real Estate. The source estimated that rent at Mega totals 8% of turnover on average, compared with a little more than 2% at Rami Levy supermarkets and 3-4% at Super-Sol, Israel’s biggest supermarket chain.
He estimated that whoever won control of Mega would need to invest some 100 million shekels renovating and upgrading stores above and beyond the cost of buying the chain.
“For whoever buys the chain to be able to earn a profit, he would need to double sales at each Mega branch,” the source said. “In addition, there are issues about employees who have generous wage agreements compared to what’s usual in the industry. The owners are unionized and can create a lot of trouble,” he said.