With Penn Traffic’s creditors accepting an $85 million offer from Tops Markets on Friday, company officials and more than 5,700 Penn Traffic employees are eagerly awaiting the official decision from U.S. Bankruptcy Court in Wilmington, Del.
Bankruptcy Court Judge Peter J. Walsh is expected to hand down his decision early next week, but Tops’ President and CEO Frank Curci has already said that if the deal is approved, most stores will remain open and most employees will be retained.
Some Penn Traffic stores could fold because “it’s not financially prudent to keep them open,” Curci said in an interview with the Associated Press on Friday afternoon. “There may be some that are too far away for us. But the majority will stay open.”
Employees of both Tops and Penn Traffic’s Quality Markets, BiLo Foods and P&C Foods stores utilize the same union, the United Food and Commercial Workers, ensuring a less complicated transition, at least as far as union employees are concerned.
The takeover would give Tops, which since 2007 has been a subsidiary of Morgan Stanley Private Equity, a solid foothold in Pennsylvania and throughout Upstate New York, the two states where the bulk of the 79 stores it would acquire are located.
A NEW DEAL
Tops submitted a comprehensive bid including cash as well as additional value created by substantial reductions in unsecured claims made against Penn Traffic by UFCW Local One Pension Fund and C&S Wholesale Grocers, a New Hampshire-based food wholesaler. Bank of America Merrill Lynch and Morgan Stanley are acting as financial advisers to Tops in this transaction.
“From the very beginning of our transition to a locally operated company, we have pledged to invest in the markets we serve, and to grow and strengthen our position as the largest grocery chain in the region,” Curci said. “This new opportunity allows us to further fulfill that pledge as we look forward to meeting the needs of our new neighbors and customers, providing them with a positive shopping experience that focuses on great variety, value and service.”
The other offers presented to Penn Traffic include one from the Schenectady-based grocery chain Price Chopper, which offered $54 million for 22 of the existing stores, which were reportedly going to be gutted and closed. Another offer, a private bid, was extended offering $36.5 million for all of P&C Foods’ assets.
Tops currently operates 71 stores with five additional franchised grocery stores and this deal would more than double that number. Curci told The Post-Standard in Syracuse on Friday that under the new deal, some of the Penn Traffic stores may retain their branding, such as Quality Markets locally, but such details would be determined at a later date.
U.S. Sen. Charles Schumer, D-N.Y., successfully secured more time from GE Capital, Penn Traffic’s main creditor, to solicit more bidders , allowing the Tops deal to make its way to the table.
“(Friday morning) Tops, Penn Traffic and all of Penn Traffic’s creditors - both secured and unsecured, reached an agreement to preserve almost all Penn Traffic stores and jobs. This is a real victory for the workers and we are on the cusp of preserving about 6,000 jobs and shopping options in rural communities across the state,” Schumer said. “It looks like we have avoided the disaster of liquidation, and that in the end all parties came together and worked to do the right thing. This was the outcome we all hoped for when I pushed GE Capital to provide more time to find bidders - the pieces all seem to have fallen into place. Now all we wait for is the bankruptcy judge to approve this deal, which, since all the parties are in agreement, he is likely to do.”
The actual Quality Markets chain’s origins trace back to 1913 as the Quality Cash Store, founded by Richard H. Reading and Clarence Thomas of Westfield. The two founders took a bold leap of imagination by deciding to sell food for a lower price than expected at a central location rather than delivering to homes, as was the norm at the time.
The first store was in Brooklyn Square in Jamestown, but the chain was built up over the years to a peak of 75 grocery stores. Quality Markets became a wholly-owned subsidiary of the Penn Traffic Company in 1979.
Penn Traffic’s financial difficulties are no secret, as the company has been through three bankruptcy reorganizations in the past decade, with the most recent leading to the Tops deal and likely acquisition.
At the end of September 2008, Penn Traffic settled with the U.S. Securities and Exchange Commission, after the commission charged the company with fraud for “orchestrating multi-million dollar accounting schemes that inflated its operating income and overstated its after-tax net income.”
In late January 2007, the company cut 50 jobs as it closed the office and distribution center in Celoron.
On Aug. 25, 2007, Penn Traffic closed the Quality Markets store in Warren, Pa., less than five months after a Wal-Mart Supercenter opened a mile down the road.
On Jan. 31, 2009, the Fluvanna Avenue Quality Markets closed its doors for good. Weeks later, the Dunkirk Quality Markets closed its doors after 28 years of operation on East Fourth Street.
Penn Traffic owned 270 stores in the mid-1990s and 212 when it entered bankruptcy in 2003, but as of today, only 79 remain. But with the Tops deal looking promising, it may not be long before new life is pumped into the struggling grocery stores, many of which trace their humble beginnings to the American Dream of two friends from Chautauqua County almost a century ago.
Officially founded in 1962, Tops experienced its share of transitions over the years, including several ups and downs. Two years ago, when purchased by Morgan Stanley Private Equity, Tops returned local management and operations to Western New York.
“Tops is very familiar with the localities served by Penn Traffic, and it is our goal to keep as many jobs and operate as many stores, without any interruption in service, as we possibly can,” said Kevin Darrington, Tops’ chief financial officer. “We also plan to invest in those stores that are in need of upgrades in an effort to best serve our customers and associates.”
Local communities may continue to have a grocery store to shop at after Tops Markets submitted an $85 million offer to purchase the Quality grocery store chain.