DALLAS -- Liquidation appears to be one of the stark options facing Fleming, industry analysts told SN last week.

That assessment came after Fleming announced it would close three more distribution centers and was considering three options as it moves through Chapter 11: restructuring the company as a going concern; selling all or part of the company to a strategic buyer; or selling all or part of the company to a financial buyer.

"Those are the only options we're exploring," Shane Boyd, a Fleming spokesman, told SN. "Anything else is simply speculation."

However, analysts said they believe Fleming will ultimately opt to liquidate after the company's latest announcements, combined with its difficulties in restoring adequate service levels to its remaining customers.

While there has been industry speculation that Supervalu may eventually buy some of Fleming's assets, reports surfaced last week that C&S Wholesale Grocers, the Brattleboro, Vt.-based distributor, might also be interested in broadening its customer base by acquiring large parts of Fleming's grocery wholesale business. C&S currently distributes to customers primarily in the Northeast and Mid-Atlantic regions.

Fleming has been operating under Chapter 11 bankruptcy protection since April 1.

The three additional warehouses Fleming intends to close, by the end of July, are in Geneva, Ala.; Lafayette, La.; and Superior, Wis. Boyd said Fleming does not anticipate holding on to any of the retailers served by those facilities, but intends to help them find other sources of supply.

Fleming is already in the process of closing grocery distribution centers in Phoenix; Salt Lake City; Warsaw, N.C.; and Northeast, Md., and a general merchandise facility in King of Prussia, Pa. It has already closed a warehouse in Minneapolis that had been serving Rainbow Foods -- a Fleming retail division that's been sold.

The distributor operates 16 other grocery and general merchandise wholesale facilities.

Fleming said it has made "substantial progress" with vendors that will enable it to enhance its ability to continue to boost service levels. "At this point, Fleming has approximately $200 million of negotiated vendor credit lines, which is expected to help further bolster operations," the company pointed out.

Despite Fleming's efforts to put a positive spin on the situation, industry analysts don't see any silver lining.

"Fleming is closing 40% of its distribution facilities and isn't even putting them up for sale before closing them," Jason Whitmer, an analyst with Midwest Research, Cleveland, told SN, "and that leads me to doubt it will continue to run the business for the long term. Instead, it looks like Fleming will pursue a plan of liquidation and try to sell the company off in parts over the next six to 12 months."

According to Arthur Roulac, a high-yield analyst with Bank of America Securities, New York, "It looks like Fleming is setting itself up for some type of orderly liquidation, where it emerges from Chapter 11 and then sells off pieces of the business, with the old Fleming ceasing to exist."

Jonathan Ziegler, principal in PUPS Investment Management, Santa Barbara, Calif., said he agreed. "With the additional warehouse closings, it looks like Fleming is moving to liquidate the business."

Closing the warehouses will lessen their ultimate value, Ziegler pointed out. "They will have real-estate value, but no customer-list value," he said.

Regarding the $200 million in vendor credit lines, Roulac said Fleming's accounts payables totalled $900 million prior to its bankruptcy filing, "and even with $200 million coming back in, it's hard to determine exactly what that entails," he told SN. "In any case, some suppliers have not returned to extending terms, and it's hard to run a distribution business without suppliers extending terms."

Boyd said Fleming is pursuing three basic options as it seeks to emerge from Chapter 11: working its way through the bankruptcy and restructuring the company as a going concern; seeking to sell all or part of the grocery wholesale business or to sell its Core-Mark convenience store subsidiary to a strategic buyer, who would continue to operate either or both entities; or to sell all or part of the wholesale business or Core-Mark to a financial buyer, who would continue to operate the company under new ownership.

Boyd said there is no timetable for a decision.

Whitmer said it's too soon to know which course Fleming will choose, "though it's clear it's proactively looking for someone to pick up assets instead of opting to run the company. Fleming can sell off large chunks of the company or it can sell it off in smaller pieces."

He suggested Core-Mark would be a likely candidate for an asset sale. "It's said to be turning a profit, and Fleming got into that [convenience store] business in the first place because it was a less depressed model than grocery wholesaling. And the fact that Warren Buffett invested in that business [when his company, Berkshire Hathaway, acquired McLane Co. from Wal-Mart earlier this year] indicates there must be some value in the convenience store business."

Ziegler expressed similar opinions. "Core-Mark is a going concern and has some value, so Fleming could sell it to management or to someone like Warren Buffett. And I think there would be other food distributors or cooperatives that would have an interest in acquiring some of the distribution centers."

According to Ziegler, the big winners to emerge from Fleming's bankruptcy are likely to be Supervalu and Nash Finch, both based in Minneapolis. "For them, this is a real opportunity," he said.

The big losers could include some of Fleming's customers, "who may not find anyone to pick up their business. Or if they're a retailer getting a 50% service level from Fleming, which puts them in a weak position, some may decide it's too tough to stay in business."

Whitmer said he agreed. "In the long run, the biggest losers will be the retail customers who relied on Fleming for financial assistance as well as product -- they're the ones who will be in a pickle," he said.