The two Ohio-based grocery chains that agreed to purchase 26 stores from Marsh Supermarkets have reached a settlement with pharmacy giant CVS Health, getting them a step closer to finalizing the transaction totaling $24 million.
During a Wednesday morning hearing in U.S. bankruptcy court in Delaware, attorneys for the Rhode Island-based pharmacy giant said they no longer objected to the store acquisitions, after the two buyers agreed not to open pharmacies in the stores until at least Jan. 31, 2018.
That’s a lot quicker than what CVS had expected, however, when it paid $38 million in April to buy the pharmacy accounts and inventory of the 37 stores where Marsh operated pharmacies. CVS was fighting to enforce a provision in that deal barring those stores from reopening pharmacies for five years.
Fishers-based Marsh said in a bankruptcy court filing Tuesday that the store purchasers—Cincinnati-based Kroger Co. and Findlay, Ohio-based Fresh Encounter Inc.—“are only willing to proceed with the sale transactions if this use restriction is removed.”
Marsh contended that the CVS agreement only barred Marsh itself from operating pharmacies at the locations. Further, it asserted that even if the condition did apply to buyers, the language was "unenforceable under the bankruptcy code.”
Marsh is selling off the stores after closing 19 locations in May and filing to reorganize under the protection of bankruptcy.
Kroger Co. entity Topvalco Inc. plans to spend $16 million to acquire 11 Marsh stores, and Fresh Encounter entity Generative Growth II LLC plans to spend $8 million to buy 15 stores.
Eighteen other Marsh stores did not fetch any interest at auction.
Now, the only issue delaying a U.S bankruptcy judge in Delaware from signing off on the acquisitions is an objection filed by the landlords of Lockerbie Marketplace, where Marsh operates one of its two downtown stores.
Gershman Partners and Citimark, the local development team that owns Lockerbie Marketplace on the east side of downtown, want assurances that Fresh Encounter has the financial wherewithal and operational savvy to fully perform under the leases it’ll be taking over.
Fresh Encounter, a privately owned chain with 21 locations, is the proposed buyer for the store.
Indianapolis attorney Jim Carlberg, who is representing the landlords, voiced his concerns via telephone during the hearing. He noted that the landlords have not yet received a purchase agreement.
“We’ve been provided with no evidence that [Fresh Encounter] can provide adequate assurance of future performance,” Carlberg said.
The two sides told the judge they would attempt to resolve the issue within the next 24 hours and provide an update during a Thursday afternoon status conference.
If the judge signs off on the deal, it would appear that Fresh Encounter will buy the 15 stores for a song. The company agreed to pay a total of $7.8 million, but just $1.5 million for the 15 stores, or $100,000 each. The remainder, $6.3 million, is for the inventory that Fresh Encounter will liquidate.
The $16 million Kroger has agreed to pay for 11 stores did not include any inventory.
Overall, Marsh received bids from seven parties. The identities of the unsuccessful bidders were not disclosed during the hearing.