In my last mini-post, Saul Degraw mentioned a company called Market Basket, a New England-based grocery store chain that easily falls under the definition of good corporate citizen. Historically, the company has been able to offer very low prices to its customers while paying its employees very well (including benefits, profit participation and pension contributions). Not only has it been able to maintain a profit, but has been able to generate profit margins at or better than its competitors. In the grocery store business, that’s remarkable.
What’s even more remarkable is that the company has been able to retain this business model in a world where people are subordinate to profits as well as the decades-long feud between two groups of shareholders, each one headed by a grandson of the company’s founder, Arthur S. on one side (his side owns 50.5% of the shares) and Arthur T. on the other (his sides owns 49.5%). A detailed overview of the drama can be found here and here – it’s a decades-long power struggle between two cousins that don’t appear to like each other and have very different visions for the company.
This dispute boiled over when the Board of Directors removed Arthur T. from his position as the company’s Chief Executive Officer. While I could have anticipated there being protests from employees loyal to Arthur T, I never anticipated the level of outrage coming from consumers, especially outrage over the loss of a CEO. The combined effect of employees refusing to work and customers refusing to shop has crippled the chain’s ability to operate (empty shelves galore) costing it millions of dollars a day in lost sales and that much in profits.
In my view, what started as an impressive if not unprecedented show of solidarity has become a disaster. Five weeks later, the situation isn’t resolved. Not only is the company losing money, but the store employees are as well in a big way.
It will be interesting to see how this situation resolves itself, but it appears that the only likely outcome may happen: The Arthur S. shareholders sell their interests to Arthur T. One interesting tidbit about the deal is this:
So why can’t the two sides — Arthur T. Demoulas and Arthur S. Demoulas, rivals for a long time — get a deal done? Griffin said Arthur T.’s offer price to buy the company has been accepted, but Arthur S.’s side has levied burdensome terms on the loan for that purchase.
If the response to Arthur T’s firing was successful in one respect, it was successful in chilling any attempt made by Arthur S. to sell his shares to a third party investor. Between the disruption in business making it impossible to accurately value the company and the prospect of dealing with a very difficult minority owner, I can’t see why any third-party investor would want to step into this situation. Too much risk and too many headaches.
However, and I’m speculating here, the same issues that would keep private equity investors away would also keep away potential lenders that Arthur T. could access in order to help come up with all the required money. Why else would he negotiate terms of a loan with the side of the family he so strongly dislikes?
Rather than go through a long analysis of a situation that yet to resolve itself, I open the floor to discussion. The whole “family business” vs. “modern finance” angle should be interesting.