Market Basket deal closes book on family feud
Capping the epic summer battle over the Market Basket grocery chain, Arthur T. Demoulas completed a $1.6 billion deal Friday to buy out his rival cousin and take control of the family business.
Under the deal, Demoulas acquired the 50.5 percent of the company he didn’t already own from his cousin Arthur S. Demoulas and other relatives. The transaction officially put him back in the chief executive’s seat he was ousted from in June.
“This is truly an exciting day for the Market Basket family, as we enter the next chapter of our company’s proud history,’’ Demoulas said in a statement.
The purchase puts significant debt on the company’s books for the first time, including a $1 billion mortgage loan backed by Market Basket’s real estate, underwritten by Wall Street’s Morgan Stanley and a large insurer whose identity was not disclosed.
There is an additional $600 million loan, led by Bank of America Merrill Lynch and KeyBank of Cleveland, according to Market Basket executives who were not authorized to publicly discuss the financing. A number of New England banks will take slices of the second loan, including Eastern Bank and Rockland Trust.
The closing of the deal ends a decades-long family feud over a popular supermarket chain with $4 billion in annual revenue and a loyal clientele that flocks to its 73 stores in Massachusetts, New Hampshire, and Maine. As a sign of its financial strength, the company distributed annual employee bonuses as usual this week. The company has recently launched three new stores and will open two more early next year.
The long-simmering family disagreement over finances burst into public view last summer, after Demoulas was fired by the seven-member board led by his cousin. That action provoked an extraordinary revolt by employees loyal to Arthur T., known for his generosity to workers. Customers joined the battle and boycotted stores, essentially shutting down the company for two months — pressure that helped pave the way for the buyout deal.
“I remain in awe of what unfolded this summer and want to extend my deepest thanks to our customers, associates, vendors, and the communities we serve for their incredible support. Without them, this would not have been possible,’’ Arthur T. Demoulas said in his statement.
Arthur S. could not be reached Friday.
Arthur T. was joined by his sisters in purchasing the other half of Market Basket. In addition to the debt, they are putting tens of millions of dollars more into the transaction. The company would not confirm precisely how much, nor disclose the length or terms of the loans. Thanks to a low-interest rate climate, the debt will cost the company about 4 percent, according to a person briefed on the terms.
Edith Hotchkiss, an associate professor of finance at Boston College’s Carroll School of Management, said the debt will make Demoulas’s finances more like those of its competitors in the industry, which tend to be saddled with debt. “If anything, they were under-levered before,’’ she said.
In one recent comparison, when the private equity firm Cerberus Capital Management bought the Safeway grocery chain in March for $9 billion, the transaction was financed with roughly $7.6 billion in debt.
Financial executives said Market Basket had a big draw among bankers vying for a piece of the deal because of its strong cash flow and $217 million in profits in 2012. About 20 lenders attended a recent meeting at the Four Seasons Hotel in the Back Bay where Arthur T. made his pitch for the financing, according to a person briefed on the meeting. Even more listened on a conference call.
The man who famously prefers to avoid debt told the bankers he hoped to pay off the company’s loans early.
Robert F. Rivers, president of Eastern Bank, said, “We’re absolutely thrilled to be associated with such an iconic brand here in Massachusetts and New England. We’ve been long admirers of Mr. Demoulas.’’
He said the debt was not seen as particularly risky. “This is a very, very strong company,” Rivers said.
Market Basket was viewed that way despite a two-month disruption that might have crippled another enterprise. The employee and customer boycotts cost Market Basket millions of dollars a day in lost business and spoiled inventory.
In late August, some 26,000 Market Basket’s employees went back to work. This week, executives distributed $49 million in bonuses the grocery chain’s workers. That’s up from $44 million in bonuses the prior year.
Arthur T. has been running the company since the two sides agreed to the buyout in late August, but he could not take full legal and financial control until Friday’s closing.
The completion of the deal triggers the resignations of cochief executives Felicia Thornton and James Gooch, who had been hired to replace Arthur T. after his ouster in June. Arthur T. also now has the authority to appoint a new board of directors.
Executives said current members Bill Shea and J. Terence Carleton will remain on the board. No other members were publicly identified.