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Pressure mounts on Market Basket board of directors

No decision on offer of buyout by Demoulas as chain’s losses increase

(Boston Globe) A brief overview of the dispute between Athur .T and Arthur S. Demoulas. Video by Scott LaPierre and Mylan Cannon / Globe Staff
(Boston Globe) A brief overview of the dispute between Athur .T and Arthur S. Demoulas. Video by Scott LaPierre and Mylan Cannon / Globe Staff

With a multibillion-dollar supermarket empire hanging in the balance, the Market Basket board of directors met Monday to again consider a buyout offer from Arthur T. Demoulas but agreed only to continue negotiating, according to a person briefed on the discussions.

Demoulas had previously set the end of Monday as the deadline for rival members of his family to respond to his offer to buy their half of the company. The board's continued negotiations will keep Demoulas's bid on the table for now, according to the person familiar with the discussions, but both sides are facing pressure to resolve the family feud that has paralyzed the 71-store chain and caused tens of millions of dollars in losses.


The stalemate is in its second week. Business specialists warned that the value of the Market Basket business will plummet if the Demoulas family and company directors do not reach a resolution in the next few days.

"Not only is the company being drained of money, but its suppliers are being hurt and employees are going without wages," said John Davis, chair of the Families in Business Program at Harvard University. "The piling on that happens because of that could really result in this company being destroyed."

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A spokesman for the Market Basket directors did not return requests for comment.

The company has also received buyout offers from outside parties, including other supermarket chains and investment firms. Several analysts had previously estimated the chain could sell for $3 billion or more.

Meanwhile, managers of some stores signed a petition stating that they would resign unless Arthur T. Demoulas is reinstated as president of Market Basket or if the company is sold to an outside buyer. It was unclear how many managers had signed the petition Monday night.


Some employees also continued their protests Monday outside Market Basket stores. The outlets remain open, although many lack fresh food.

While some supermarkets received sporadic deliveries, inventory piled up in warehouses where employees are refusing to show up for work.

Unable to get food from the warehouses to the stores, Market Basket shipped 16 truckloads of perishable goods such as poultry and produce to the large food banks in Boston and New Hampshire that assist the poor, according to the company. Staffers at smaller food pantries said they received donations directly from stores.

Several Market Basket employees said the company hired replacement workers to get deliveries to stores; however, workers protesting outside the company's warehouse in Tewksbury Monday said that only a fraction of the normal run of trucks was able to leave.

Stephanie Schwechheimer, who manages a Market Basket in Haverhill, said her store received a shipment Monday that was supposed to have arrived last Wednesday.

"We don't know the status of our July 21st order, which should have come first," Schwechheimer said. "They're in the system somewhere."

RELATED: Meet the Market Basket board of directors

In another development, the US Occupational Safety and Health Administration confirmed Monday that it has begun an inspection of workplace safety conditions at the main Market Basket warehouse in Tewksbury. A Department of Labor spokesman said the investigation was opened earlier in July in response to a complaint after drivers and warehouse employees first walked off the job and it will probably continue for several weeks. The spokesman said a separate inspection of a Market Basket warehouse was ongoing.


The weekslong turmoil at Market Basket was sparked in late June when Demoulas was fired after his cousin and chief rival, Arthur S. Demoulas, gained control of the company's board. That triggered a series of well-attended rallies by employees and brought a feud that has haunted the Demoulas family for more than three decades into the New England communities where Market Basket operates, prompting thousands of loyal customers to boycott the chain.

Industry specialists have estimated the crisis is costing the company more than $10 million a day in lost business and inventory. If the hemorrhaging does not end soon, Market Basket may not be able to keep its stores open or pay vendors, causing its value to plummet in the eyes of would-be buyers, the industry observers say.

"Any prospective buyer is going to look at it and say, 'It's not worth it,' or they will only buy it at a fire-sale price." said Tom Kochan, a professor at the Sloane School of Management at the Massachusetts Institute of Technology.

Kochan said the operational problems and mounting losses should place more pressure on board members to resolve the dispute. The company's seven-member board is made up of representatives of both sides of the family, but it includes three independent members whose positions were created to keep the rival family factions from undermining the business.

"They need to take action now," Kochan said. "That's what they're there for. They need to stop responding to the family feud and exercise some independent thinking. If they get caught up in the emotions, they could lose this company."


The consequences of the company's collapse would extend far beyond the family. Market Basket has more than 25,000 employees and a web of suppliers that extends throughout New England, from small farms to large food producers that supply everything from bread to dairy products to meat, fish, and frozen foods.

It also has a loyal customer following that in recent days has shopped elsewhere and might be difficult to lure back.

"They'll start to sour on it," said Kevin Griffin, publisher of the Griffin Report on Food Marketing. Griffin said Market Basket's board has days — not weeks — to facilitate a sale or otherwise resolve the dispute.

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The independent board members include:

Keith O. Cowan, a former president of strategic planning at Spring Nextel Corp.; Ronald G. Weiner, president of Pereleson Weiner LLP, a consulting and accounting firm in New York City; and Eric F. Gebaide, managing director of the investment banking firm Innovation Advisors in New York.

On Friday, the board issued a statement that pointedly reaffirmed its hiring of James Gooch and Felicia Thornton to replace Arthur T. Demoulas as top executives of the company.

Martin Meehan, head of the University of Massachusetts Lowell and a former congressman for the area where the Demoulas chain was founded, said that by backing Gooch and Thornton, the independent directors are only prolonging the family battle.


"For the independent directors, this course of action is either incompetent or grossly negligent, and I don't think it's incompetence," Meehan said. "I think they have totally miscalculated. The value of the company is going to be a fraction of what it was before Arthur T. was removed."

Even if the board manages to facilitate an agreement to let Arthur T. buy the company, it will be up to Arthur S. and shareholders on his side of the family to accept or reject it. The Arthur S. faction includes his sisters Diana Merriam and Fotene Demoulas and the heirs of his deceased brother, Evan Demoulas. Together, they control 50.5 percent of the business.

Jack Newsham can be reached at jack.newsham@globe.com. Follow him on Twitter @TheNewsHam. Casey Ross can be reached at cross@globe.com.