Fresh & Easy Neighborhood Market Inc. has filed for chapter 11 bankruptcy in what the company calls a move to prepare its sale by Tesco PLC to Yucaipa Companies LLC.
The case was filed Sept. 30 in federal court in Delaware.
“Today’s filing is simply the next step in the restructuring process to sell the business to the Yucaipa Companies and will have no impact on our customers’ shopping experience,” Fresh & Easy spokesman Brendan Wonnacott said in a statement. “It’s business as usual as we continue the transition to new ownership.”
Earlier in the month, United Kingdom-based Tesco said it plans to sell more than 150 stores and other assets in California, Nevada and Arizona to Yucaipa, whose managing partner is Ron Burkle. About 50 other stores are expected to close.
Tesco can terminate store leases more easily under bankruptcy protection, paving the way for an acquisition at auction by Yucaipa.
Fresh & Easy owes Tesco $738 million, according to a report in Bloomberg Businessweek. Fresh & Easy asked court permission to use $5 million to pay all Perishable Agricultural Commodities Act and Packers and Stockyards Act claims, according to Fresh Facts blogger Jason Klinowski.
The prospect of a sale was in the air since December, when Tesco chief executive officer Philip Clarke said the chain wasn’t profitable enough to sustain its $1.6 billion investment. Yucaipa’s purchase for an undisclosed amount was expected to be final by the end of the year.
The stores, a distribution center and other assets were valued at $362.8 million in February. Pre-tax net losses were $258.5 million for the last fiscal year.
Tesco expects to spend the equivalent of $237.3 million on store closures and other expenses. Those include a loan of $126.6 million to the new company.
About 4,000 of Fresh & Easy’s more than 5,000 employees will keep their jobs. Yucaipa also acquires Fresh & Easy’s Riverside, Calif., distribution and production facility.