Supermarket chain Winn-Dixie files bankruptcy reorganization plan
Winn-Dixie Stores Inc. filed its plans Thursday to emerge from bankruptcy by the end of October, but some analysts question whether the supermarket chain will be able to lure customers back and hold off challenges from Wal-Mart, Publix and its other competitors.
The once dominant grocery chain in the South now must get creditors and vendors to agree to the plan, which generally calls for them to be paid from 50 cents to 93 cents on the dollar with newly issued stock.
Creditors and vendors are comfortable with the plan, which will make them Winn-Dixie’s owners and values the chain at $750 million, said Stephen Busey, a company attorney.
A phone call to an attorney for the creditor’s committee, John B. Macdonald, was not immediately returned. After a hearing on June 16, Macdonald said he was pleased with a compromise reached between creditors and the company.
The Jacksonville-based chain has posted operating losses for the first three quarters of its fiscal year, despite an increase in same-store sales, a key gauge of a retailer’s health. It now has two-thirds as many stores as it had when it filed for Chapter 11 reorganization in February 2005.
A key element of the plan, negotiated over months, would leave the company with minimal long-term debt after reorganization.
Peter Lynch, president and chief executive, praised his company for what he called its “tremendous progress.”
He said when he arrived at Winn-Dixie, “the brand was badly tarnished. We have spent the last year cleaning it up.” He said his priorities were “focused on cleaning up the stores, having better customer service, having a better emphasis on quality products and a focus on the perishables.”
“There is always critics out there, but I will stand by our record and I am feeling very, very confident,” Lynch said at a new conference.
Barton Weitz, executive director of the Miller Center for Retailing at the University of Florida, doesn’t believe Winn-Dixie has improved enough in reorganization.
“I don’t think there has been a radical change in the quality of service, merchandise and store atmosphere and environment. They are in a difficult position, being caught between Wal-Mart on the low end and Publix, based on customer service and merchandise,” he said.
Burt Flickinger III, who tracks the industry as managing director of Strategic Resources Group in New York, said the company could end up back in bankruptcy after emerging in October, despite its $715 million in exit financing from Wachovia Corp.
Competitors are opening a record number of new stores in the south, further complicating Winn-Dixie’s attempt to gain market share, Flickinger said.
Since Winn-Dixie has sold off many of its distribution centers, plants and stores, Flickinger doesn’t believe they are ripe for a takeover.
“They’ve sold the crown jewels,” he said.
The plan establishes 19 different classes of shareholders and gets rid of the common stock of current shareholders.
The plan was presented Thursday afternoon to U.S. Bankruptcy Judge Jerry Funk, who had no comment on the 178-page document.
The chain wants Funk to approve the plan on Aug. 4. It usually takes about 60 days to get approval from creditors and vendors, meaning the chain could have a confirmation hearing in early October and emerge from bankruptcy later that month, Busey said.
The company also said it planned to keep Lynch on board and both sides were working to extend his current contract, which ends Aug. 31.
The chain now has 527 supermarkets and about 54,944 employees and operates stores in Florida, Georgia, Alabama, Mississippi and Louisiana. The company said store closings and measures to slash overhead led to a $100 million reduction in annual costs.
Winn-Dixie listed assets of $2.2 billion and liabilities of $1.9 billion when it filed for reorganization.
Winn-Dixie’s largest current shareholder is the Davis family, which founded the company in 1925 and owns 51.7 million shares, or 36.7 percent of the common stock. The Davis family holdings were worth about $3.5 billion when the stock peaked in 1998 and are now worth about $3 million.