Grocers Still on Yucaipa's List

LOS ANGELES Though the recent Wild Oats and Pathmark deals have considerably lightened its basket, Yucaipa Cos. isn't through grocery shopping. The private equity fund, based here, continues to hold small stakes in some industry companies and is seeking more investment opportunities in the food retailing sector, Yucaipa spokesman Frank Quintero told SN last week. Historically, 25% to 30% of what we

LOS ANGELES — Though the recent Wild Oats and Pathmark deals have considerably lightened its basket, Yucaipa Cos. isn't through grocery shopping.

The private equity fund, based here, continues to hold small stakes in some industry companies and is seeking more investment opportunities in the food retailing sector, Yucaipa spokesman Frank Quintero told SN last week.

“Historically, 25% to 30% of what we do is grocery, so we will still continue to look at supermarket deals,” he said.

Yucaipa and its leader, Ron Burkle, built their fortunes in grocery deals starting in the 1980s and culminating in the massive Kroger-Fred Meyer deal in 1999. Its return to the space in 2005 — revealing investment stakes in Pathmark and Wild Oats — was viewed by some as the beginning of a new era of interest among private investors in the supermarket industry.

Those investments — which included installation of Yucaipa-affiliated management and board representation in both cases — culminated in strategic deals this year spaced only weeks apart. Wild Oats in February accepted a surprise buyout from rival Whole Foods, while Pathmark last month agreed to be acquired by A&P.

Quintero said the timing of the deals was coincidental. Each was driven only by the fact that Yucaipa — along with other shareholders — realized a strong return on their investments, and did not indicate a lack of confidence in either company, or the industry.

Yucaipa began acquiring Wild Oats shares on the open market beginning in 2005, when they were trading at less than $10 per share, eventually gaining an 18% ownership stake and influencing a management shuffle and strategic changes intended to position it as a more “mainstream” store. It agreed in February to a buyout from Whole Foods at $18.50 per share.

“When we started investing, we thought it would be a great company to run on its own, but [acting Chief Executive Officer and Yucaipa board appointee] Greg Mays made a great deal for the shareholders and Yucaipa, and we went that way,” Quintero said.

“It is what it is,” he added. “If someone comes in with a good offer, you take it.”

Yucaipa's 40% stake in Pathmark was acquired in a competitive bid after the Carteret, N.J., retailer put itself up for sale. A business combination with a Northeast rival was an expected outcome from the start — the only mystery was how the deal would be structured and whether Yucaipa would retain a controlling stake.

That question came down to negotiations between A&P and Pathmark, a source close to the deal told SN. Though A&P bought Pathmark, “it could easily have been the other way around,” the source said.

“What came up was a great deal for shareholders, and that's what we're about, so that's what we went with,” Quintero said. Under the terms of the deal, Yucaipa would retain about a 5% ownership stake in the combined entities and could acquire close to 10% though the exercise of stock warrants, but the company will not seek board representation at A&P, Quintero said.

“Ron and [A&P CEO] Christian [Haub] are close, and if Christian needs his advice, Ron will be there. But in terms of us making recommendations or running the company day to day, that won't happen,” Quintero said. “They're in charge.”

Yucaipa also retains a stake in Supervalu, Minneapolis. The firm in a filing last year said it could buy up to 12% of the total outstanding shares, but currently holds a stake considerably smaller than that, sources said.