business news in context, analysis with attitude

C&S, Nation's Third Largest Wholesaler, To Buy Business; Also Will Begin Immediately Providing Fleming With Groceries

Fleming Companies has signed a letter of intent to sell its grocery wholesale business to C&S Wholesale Grocers, the privately held company that is the nation's third largest grocery wholesaler. The terms of the sale were not disclosed, and it is contingent on "the execution of a definitive asset purchase agreement," according to a statement released by the companies.

In a separate arrangement, C&S agreed to promptly begin supplying Fleming with selected vendor products for distribution to Fleming retail customers.

"These actions represent major steps in Fleming's Chapter 11 process," said Fleming's Interim President and Chief Executive Officer Pete Willmott. "We believe the best way to maximize the value of the business for our constituents is to sell Fleming's grocery wholesale business to a strong buyer who can provide our customers with the service and reliability they need. This arrangement with C&S…is designed to allow performance to be restored and enhanced in our grocery wholesale divisions, to the benefit of our customers and associates. The supply arrangement with C&S, which is effective immediately, will provide additional product to enhance service to Fleming customers."

C&S Executive Vice President Mark Gross said, "The purchase of Fleming's wholesale grocery operations would allow us to expand our business into parts of the country where we do not presently operate. We are excited about working with Fleming and its chain and independent supermarket customers in a mutually beneficial transition for all parties."

Fleming currently is operating under bankruptcy protection, having filed for bankruptcy back on April 1. It expects to file a motion with the courts to set in motion the procedures that will set in motion an auction of the grocery wholesaling business that would be completed within the next six weeks. The possibility remains that another bidder could step in, or that an auction of the parts could create a sale price greater than an auction of the whole thing as a single entity.

This move does not affect Fleming's Core-Mark convenience wholesaling business, which operates as a separate entity.

C&S Wholesale Grocers has annual sales in excess of $11 billion, and has been ranked by Forbes as the nation's 11th largest private company. The company says that it "provides wholesale food distribution to grocery chains, as well as independent stores throughout the Northeastern and Midwestern United States, delivering to over 2,200 locations from its distribution centers in Vermont, Massachusetts, Connecticut, New York, New Jersey, Maryland, Ohio and Pennsylvania."
KC's View:
Obviously, this is an enormous story for the food industry, and it raises a number of questions:

  • Will another entity step in and try to trump C&S's bid and set off a bidding war for Fleming's grocery wholesale business? There is a very strong possibility that the feeding frenzy that occurred in the UK after William Morrison put in a bid for Safeway Plc (which wasn't in bankruptcy, and therefore pricier) could get replicated here.

  • Will C&S remain a privately held company now that it is more than doubling its size?

  • How long will it be before Fleming sells off its Core-Mark c-store distribution business? And will Warren Buffet step up to buy it, now that he's already acquired the McLane business from Wal-Mart?

  • And, despite the fact that it appears that Fleming will vanish from the face of the earth, will there be legal actions taken against the former senior executives who guided it in the months and years that led to its demise? (The betting among a number of former and current company executives is that there will…though it is a little hard to tell whether these are informed judgments or just wishful thinking…)

In a draft copy of "talking points" that was obtained by MNB, it was stressed to employees that C&S is "known for being a cost-efficient distributor with a stable, growing business." The company said that "We believe selling the wholesale business to such a strong buyer gives us the best chance for restoring service levels and serving the largest number of customers. This will be seen as good news by many of our customers. Obviously, this can also be good news for associates."