Offers to Buy Demoulas Supermarkets Inc (DSM)
Core question: What is the deal with the offer(s) to buy the company the board of directors mentions. Everything is hinging on this and we know little about it. Let’s explore:
What we know:
- DSM has (had?) valuable real-estate and a strong business that is marketable and others would lust over.
- Demoulas are crazy. Endless ugly lawsuits (so bad lawyers have been disbarred) and family struggle is unpredictable. Businesses do not like unpredictable and they like unpredictable that can bite even less.
- DSM’s retail operation and real-estate can be de-linked and sold separately.
- Cerberus Capital Management attempted a deal in 2011 and backed out.
- Known bidders now are ATD and Delhaize.
- No one on the board has retail business experience.
- Felicia Thornton was CFO of Albertsons when they sold to Cerberus Capital Managment.
- James Gooch has links to Delhaize in a few places; namely the new Delhaize America CEO Kevin Holt was at Sears Holdings when Gooch was there and Delhaize board member Claire Babrowski handed the RadioShack reigns to Gooch.
Now from this point forward I’m reading between the lines because there are no more solid details (that I know of) to work with. Let’s explore:
Past ties in new CEOs often give a hint of where the board wants to go. Common business practice is when a company is courting buyers they install leadership who have links with potential buyers to help smooth negotiations (it is usually not a conspiracy; it is just easier to sell to someone you know).
Based on the above it appears that the board of director’s (BOD) plan was to sell the real estate to Cerberus and the retail operation to Delhaize. Now the next question: was the BOD courting buyers or were buyers already bidding and the BOD was just setting up the sale? Let’s explore:
- DSM’s real-estate and retail operation on their own is extremely attractive. I could see many businesses wanting in on it.
- I can see Demoulas themselves being a deal-killer. Who would want to be involved in endless lawsuits? Who could get them all to agree to sell? If all would not agree and it was a partial sale, who would want a Demoulas in your bed and constantly antagonizing you?
- But if it is all valuable enough some buyers can tolerate a little crazy. . . and retail food is hot and super competitive right now.
- Recent publicity and boycott combined with Demoulas crazy is likely way more risk then any rational business-person would like to take on.
- When a big company is looking to buy a small company they usually get their "A" team installed within the company. Neither Thornton nor Gooch are on anyone’s "A" team.
In summary it looks like the board of directors was courting Delhaize and Cerberus and not the other way around. This implies the BOD’s position was fairly weak from the beginning.
Now a bigger question — why does the board of directors seem to imply that a deal with someone other then Arthur T. is on the horizon (or at least a serious reachable option)? Let’s explore:
- Delhaize (or any retail competitor) wins if Market Basket implodes and they win if they acquire Market Basket cheaply. They only lose if Market Basket remains a healthy competitor.
- Cerberus likely is not formally bidding but likely has not ruled it out (since we know they were involved in the past but have seen no hints at all about them recently).
- If a deal was on the horizon the most logical response to Delval Patrick’s pressure would have been to close a deal or at least formally reveal the high bidder in order to set expectations. The fact the BOD’s response to Deval was a series of negative press releases (aka: punch Arthur T) shows they likely have nothing tangible in-hand other then Arthur T’s bid.
My analysis? The board of directors was trying to woo leary but realistic bidders before this whole fiasco and any realistic deal evaporated in the boycott and the publicity. BUT companies like Delhaize (and likely Ahold, too) are smart experienced retail business-people so they saw the opportunity to stoke the fire by antagonizing Arthur T’s bid. This makes the board think they have a strong hand to fight with thus prolonging the struggle and driving more customers to Hannaford.
In other words, I believe the board of directors has nothing and is getting played by the big boys. Think about it — why would Delhaize buy the schizophrenic cow when they can sweet-talk the farmer into shooting it and get the whole milk market for free!
Now the four-billion-dollar question: does the board of directors know they’re getting played by the big boys?
The board are not experienced in retail business so they may not realize they’re getting played — that would explain their inaction and crassness in the face of crisis.
It is also possible (but less likely) that they know they got played, realized they messed up and would rather burn down the house and hope the evidence of their incompetence disappears in the smoke.
So that’s that; I believe board of directors has nothing realistic other then Arthur T’s bid. Please comment if you have any other ideas or information.
I’ll write again tomorrow looking at options the parties have. Bringing back ATD as CEO is clearly the easiest way out of this mess. . .but the question is what moves can be made now that brings that solution closer. It is tricky. . .
UPDATE: In the latest press release the "A" shareholders are creating the appearance of haggling Arthur T’s proposal in public. This is likely good news; it appears they’re trying to save some face before they close the deal. Beware: there’s still a chance that this means nothing; remember Demoulas family interaction has proven to be unpredictable.
UPDATE 2: I was wrong; a deal was not made. Again, unpredictable.