Billionaire Los Angeles investor Ron Burkle has managed to avoid a bidding war for Pathmark Stores Inc. despite the existence of higher offers primarily because the grocery chain’s board doesn’t want a buyer to come in who will close and sell ailing stores.
Pathmark’s board has been criticized by New York hedge fund Lampe Conway & Co., owner of a 6.4 percent stake in the Carteret, N.J.-based company, and the advisory firm Institutional Shareholder Services for refusing to disclose the names of the other bidders. (There is no requirement for such disclosure.)
The board apparently shied away from at least one suitor after a newspaper article in February reported that the bidder, C & S; Wholesale Grocers, wanted to sell stores to capture the underlying real estate value.
There was “significant negative comment among company employees, including those at the store level, who expressed concern that Bidder No. 4 (presumably C & S; Foods) would be reselling the stores,” the company said in a proxy filing last month. “As a result, the board of directors became concerned that the company’s business could be adversely affected by employee departures following the announcement of a transaction with Bidder No. 4.”
Last week, the Carteret, N.J.-based supermarket chain said in a Securities and Exchange Commission filing that one bidder had offered to pay $8.75 a share for the entire company, after a previous offer of $8.30 a share was rejected. But it didn’t identify the bidder.
Rather than take the highest offer, Pathmark’s board gave Burkle’s Yucaipa Cos. the go-ahead last week to solicit shareholder support for its $7.50 per share, $150 million investment in return for a 40 percent stake in the chain.
Pathmark plans to issue 20 million new shares to Yucaipa, which also gets warrants to buy 10 million shares at $8.50 each and an additional 15 million of 10-year warrants at $15 each. The additional shares and warrants would potentially raise Yucaipa’s stake to 60 percent. The firm also would receive five of 11 board seats in the transaction.
The deal will be up for a shareholder vote at a special meeting to be held June 9.
“All factors considered, our board believes the Yucaipa transaction is in the best interest of our shareholders,” said Harvey Gutman, a Pathmark spokesman.
Yucaipa stands to benefit from the deal in others ways. Pathmark entered into an agreement with Yucaipa to provide financial advice and management services for an annual fee of $3 million, plus $500,000 in expenses. In addition, the company will pay Yucaipa a $3 million closing fee and reimburse it $3.2 million of out-of-pocket expenses.
Pathmark’s board began exploring a sale of the company a year ago when it hired investment banking firm Dresdner Kleinwort Wasserstein.
Managing Data
How to make a FileNet flip: Mix better-than-expected quarterly profits with a promise of more to come. Watch stock sizzle.
That’s been the recipe for Costa Mesa-based FileNet Corp., a maker of software for managing far-flung data on corporate networks.
In late April, FileNet reported a doubling in first-quarter profits, thanks largely to cost cutting. Operating expenses dropped 7 percent from a year earlier.
The results were more than what Wall Street had expected and FileNet said sales and profits for the current quarter also should beat what analysts had in mind.
As of last week, shares were up nearly 30 percent since mid-April, the second highest point for the stock in three hard years and a peak for the year.
FileNet had a market value of $1.5 billion last week not bad for a company that was slammed by investors six months ago for not closing enough deals.
Late last year, FileNet found itself in a slump, as big deals it looked to close weren’t realized. Some speculated that customers were dragging their feet on big software buys to avoid messing up their auditing in the first year of compliance with the Sarbanes-Oxley accounting reform act.
FileNet sells content management software that big companies and others use to organize disparate computer files that aren’t easily handled by a database. Those include audio and video files, electronic forms, scanned documents and e-mails.
Rivals include IBM Corp. and EMC Corp., which bought FileNet competitor Documentum Inc. in late 2003. Smaller players include Florida’s Citrix Systems Inc. and Canada’s Hummingbird Ltd. and Open Text Corp.
But FileNet has the lead in the content management market, according to market tracker International Data Corp. “Our win rates against IBM and EMC have been consistent in that 60 percent to 70 percent range, and that has been consistent now for five or six quarters,” Chief Executive Lee Roberts told investors on a conference call last month.
FileNet closed a number of deals with big customers in the first quarter, including Avaya Inc., Citigroup Inc.’s European arm and Canadian utility British Columbia Hydro and Power Authority.
Another factor that always seems to be at play for FileNet: acquisition rumors.
FileNet long has been cited as a takeover target for big players looking to get into or expand in the company’s market. Roberts and other FileNet executives dismiss such speculation, saying the company is intent on going it alone and making acquisitions of their own.
Orange County Business Journal
Teeth Exchange
Santa Ana-based Bright Now Dental Inc., a dental practice management company, has traded hands between private equity firms.
San Francisco’s Gryphon Investors Inc. sold its majority stake in Bright Now to Freeman Spogli & Co. of Los Angeles. The companies didn’t disclose terms.
Bright Now, which operates dental offices and provides business support services to those offices, counts yearly sales of about $350 million, up from $30 million in 1998, when Gryphon bought a controlling stake.
Bright Now has boosted its market share through a pair of acquisitions in the past couple of years. In 2003, it bought Monarch Dental Corp., a Dallas-based company that provided business support services for dentists, for about $11 million. Last year, Bright Now paid $53 million for Castle Dental Centers Inc., a Houston company with 73 offices in Texas, Florida, Tennessee and California.
Orange County Business Journal
