The bankruptcy ends the grand entrance onto the U.S. stage of Britain’s biggest supermarket chain. When Tesco launched the chain in Arizona, California and Nevada in 2006, many expected the deep-pocketed company to quickly expand to challenge the dominant U.S. food retailer, Wal-Mart Stores Inc.
But Tesco jumped into the U.S. Southwest just as the region’s sizzling real estate market began to cool, and the U.S. business never generated a profit, according to Bankruptcy Court documents.
Under the proposed sale, an affiliate of Tesco will lend Burkle’s private equity firm Yucaipa Cos $120 million to help fund the takeover of the chain, Fresh & Easy Neighborhood Market Inc. Yucaipa anticipates acquiring and operating 150 stores.
Tesco has said the stores that are not sold will be closed. It has said about 4,000 jobs will be preserved out of 4,187 current employees.
A unit of Tesco will end up with a 22.5 percent stake in the Yucaipa affiliate that acquires the grocery store chain, according to documents filed in the U.S. Bankruptcy Court in Delaware.
The proposed sale to Yucaipa will serve as a leading bid in a court-supervised auction, which Fresh & Easy said it plans to hold on Nov. 11. The company asked the court to schedule a hearing on Nov. 13 to approve the sale.
Tesco spent $610 million in the first two years building the business, and sales eventually grew to $1.2 billion annually, according to court documents.
But the business was never able to support the top-of-the-market leases, and it was losing $22 million a month over the past year, according to the documents.
Bankruptcy will allow Fresh & Easy to reject or renegotiate leases that are no longer economical.
The company’s biggest creditor is Tesco, which is owed $738 million. Tesco has taken a 1 billion pound (or $1.6 billion) writedown on the U.S. chain.
Fresh & Easy also owes $18.4 million to vendors.
The Chapter 11 bankruptcy filing comes as Tesco is in the midst of $1.6 billion turnaround plan. Once the envy of British retailers, Tesco has been hurt by falling profits, a costly retreat from the U.S. and Japanese markets, and revelations that horsemeat had been found in some meat products sold by Tesco and other retailers.
The case is In Re: Fresh & Easy Neighborhood Market Inc, U.S. Bankruptcy Court, District of Delaware, No. 13-12569.
Tom Hals is a reporter for Reuters News