THE HEAVILY indebted chain’s owners were also weighing filing a stay in court or simply reaching into their own pockets to pay the bills..
(photo credit: EYAL YITZHAR/GLOBES)
Owners of the financially troubled grocery chain Mega debated Thursday night whether to make a crucial NIS 50 million payment to suppliers on Friday.
As of press time, the board had yet to meet to decide how to handle its cash crisis. But Calcalist reported that Mega would choose to miss the payment after suppliers rejected a request to accept a weeklong payment deferral. A failure to pay would likely halt supplies and ring a death knell for the chain’s remaining stores.
The heavily indebted chain’s owners were also weighing filing a stay in court or simply reaching into their own pockets to pay the bills.
In December, the chain sold 17 of its You discount supermarkets to Victory and Johananoff for a reported NIs 95 million.
A few days later, it sold off another four to Rami Levy for NIS 18m. Through layoffs and branch sales, the company had reduced its workforce by some 2,100, though some employees were expected to keep their jobs under the new branch owners.
Earlier in the month, Alon Blue Square Israel, the parent company of supermarket chain Mega, planned a further debt arrangement to try to sell the Mega in the City (Mega Ba’ir) sub-chain of stores within residential areas. Globes reported that the parent company was planning a debt write-off of over NIS 700m., and other media sources reported that the Mega chain was operating with an equity deficit of NIS 800m.
Over the past few weeks, Alon Blue Square CEO Avigdor Kaplan has been attempting to sell Mega in the City and has signaled that the group’s controlling shareholders desire to divest themselves completely of the collapsing chain.
Alon Blue Square has received several expressions of interest in Mega, but no actual buyers, because of the many obstacles that stand in the way of a sale. Mega has enormous debts, and a sale cannot go ahead without the agreement of the banks, the suppliers and other service providers to a debt writedown.
In addition, Mega’s workers have been promised onethird of the shares in the chain, and at least some of the potential buyers have said they do not want the employees as partners.
For their part, the employees might be willing to forgo the shares on condition that they are hired by the acquiring company under their existing collective labor agreement. On top of this is the obstacle of the debt Mega owes to the parent company.
Unless Mega in the City is sold as part of a debt arrangement, the entire chain will go into receivership, and then all the creditors will stand to lose much greater amounts.
Under the debt arrangement being formulated, the suppliers will be required to forgo the deferred debt totaling NIS 200m. The deferred debt is 30 percent of Mega’s original debt to its suppliers, which the suppliers agreed to defer for two years and to spread over 36 repayments.
The banks, to which Mega owes NIS 440m., will be also be required to make concessions.
Alon Blue Square is a guarantor of NIS 200m. of this debt, and the banks will be asked to write off 30% of the remaining amount, about NIS 70m. Other service providers to Mega will be asked to forgo debt totaling NIS 40m.-NIS 50m.
Under the planned arrangement, Alon Blue Square will forgive owners’ loans of NIS 170m. and a further NIS 260m. in loans from guarantor companies, giving a total of NIS 430m., not including the loan guarantees, to the banks.
Capital-market sources estimate that Alon Blue Square is counting on its market cap soaring as soon as the Mega hot potato is passed to other hands. But the chances of the plan coming to fruition, even if the suppliers agree to it, are slim because of its complexity, with so many players having to come into line at the same time: the suppliers, the banks, the workers and the buyer.