A Few Details Emerge in Gelson’s Store Bid

Digging into the details of Gelson’s proposed purchase of eight southern California Haggen grocery stores, including the one in Laguna Beach, provides a clearer picture of the transaction, and perhaps the motive for the purchase.

Gelson’s bid for Haggen’s leases, improvements and pharmacy inventory, but interestingly not existing grocery inventory, according to a Oct. 2 filing with the U.S. Bankruptcy Court in Wilmington, Del.

While not specifically broken down by price for each store location, the cumulative $36 million offer does represent a considerable investment toward Gelson’s expansion of their store footprint.

“Increasing store count by 45 percent is a big bite for an 18-store group,” said David Livingston, managing partner of DJL Research, a supermarket research advisory firm in Waukesha, Wisc. “I have not done a store-by-store analysis of those locations. I’m sure Gelson’s has done their due diligence and probably looked at those locations before Haggen’s bought them.”

Gelson’s was required to post $3.6 million in escrow as Judge Kevin Gross considers its bid, which provides Haggen with a financial floor of sorts to ensure that the company recoups something from the anticipated losses in the divestiture. Gelson’s, too, gets a bit of a cushion should Haggen receive a sweeter offer before the bidding window closes Oct. 26 and the auction occurs Nov. 9. Gelson’s would receive a $1 million break-up fee should the transaction not occur.

On the liability side of the ledger if the bid succeeds, Gelson’s would assume Haggen liabilities, but not employee pension arrangements, according to the court documents. But 95 percent of store employees will be offered jobs prior to the deal closing, which is anticipated to occur no later than Dec. 31, the bid proposal says.

Gelson’s proposed expansion reveals a company looking to solidify its position as a purveyor of fine food service. “Our goal is to provide customers with an experience equal to that of top restaurants, with the best customer service and quality of any supermarket in town,” said Gelson’s President and Chief Executive Rob McDougall in a statement.

“My question is will Gelson’s continue to operate all their existing stores and these new ones,” Livingston asked.

Even if eventually Gelson’s consolidates some of its older stores into the new ones, the deal suggests the company is seizing an opportunity rather than defensively blocking its rivals, Livingston said. “Expanding in Los Angeles isn’t easy, so if they can get a one-time chance to buy some cheap, distressed location, I can’t blame them for taking an aggressive approach. Even if a couple of them don’t work out, long-term it should not harm them,” he said