Yucaipa Picks Up Tesco's Fresh & Easy
Investment firm says it intends to create "next-generation convenience retail experience"
EL SEGUNDO, Calif. -- Despite recent rumors that the deal was falling apart, Tesco PLC has agreed to sell most of its Fresh & Easy Neighborhood Markets Inc. small-format grocery business to YFE Holdings Inc., an affiliate of Yucaipa Cos. LLC. The decision follows Tesco's strategic review of its U.S. retail business.
Yucaipa will acquire more than 150 stores as well as Fresh & Easy's Riverside distribution and production facilities. More than 4,000 employees will also transfer to the new business.
"Fresh & Easy is a tremendous foundation. Tesco should be applauded for giving their customers an affordable, healthy, convenient shopping experience," said Ron Burkle, managing partner of Yucaipa said. "Its dedicated employees and great base of customers give us a solid starting point to complete Tesco's vision with some changes that we think will make it even more relevant to today's consumer. We plan on continuing to build Fresh & Easy into a 'next-generation convenience retail experience,' providing busy consumers with more local and healthy access for their daily needs."
Although the Yucaipa announcement did not offer details, previous reports indicated that Jim Keyes, the former CEO of 7-Eleven Inc. and Blockbuster Inc.--and who owns the Wild Oats natural foods brand (formerly a retail brand attached to more than 100 grocery stores, which Whole Foods Inc. acquired in 2007)--would serve as CEO of the new venture. The stores are expected to re-launch the Wild Oats as an in-store brand.
Yucaipa said it expects to complete the Fresh & Easy purchase within three months; in the meantime, it is business as usual for most Fresh & Easy stores, the firm said.
Those stores not included in the transaction will be closed over the coming weeks.
Fresh & Easy notified customers about the sale via email and social media:
Today our parent company Tesco has announced it is selling the Fresh & Easy business to The Yucaipa Companies LLC. All along we have been hopeful that Fresh & Easy could be sold as an operating business, preserving jobs and the great shopping trip you've come to expect from Fresh & Easy.
We are very pleased that this agreement with Yucaipa preserves more than 4,000 jobs and a vast majority of the business. Unfortunately, as a result of this agreement some stores will be closing.
For over five years, all of us here at Fresh & Easy have worked hard to bring you great products and a great shopping trip at a great value. We appreciate the love and support we have received from you, our most loyal shoppers. Rest assured, we plan on working through this transition to new ownership with the same spirit and dedication that we've brought to this business since the beginning.
We are also pleased to announce that Yucaipa will be offering a Friends Rewards program just like the Friends of fresh&easy Rewards Program you already love. ... Thank you again for your support, and we look forward to seeing you in one of our stores soon.
Sincerely, The fresh&easy Team
As reported in a Raymond James/CSP Daily News Flash, the companies expect total cash outflow relating to the closure of these stores, other expenses and the loan to be no more than $236 million. As part of the deal, Tesco will loan the new business $125.9 million, secured against the Riverside Campus facility.
When it debuted in late 2007, its small format immediately put it on the convenience industry's competitive radar screen; it became the topic of much debate as to whether it was, in fact, a threat. But the troubled Fresh & Easy chain never made a profit, and its fate was a longtime subject of speculation. Tesco invested about $1.6 billion in the chain and the country before deciding that the stores, which target urban areas with private-label food, was a drain on earnings and resources and that it was time to sell it.
The sale is in line with Tesco's focus on the disciplined allocation of capital to those markets with significant growth potential and the opportunity to deliver strong returns.
"The decision we are announcing today represents the best outcome for Tesco shareholders and Fresh & Easy's stakeholders. It offers us an orderly and efficient exit from the U.S. market, while protecting the jobs of more than 4,000 colleagues at Fresh & Easy," said Philip Clarke, CEO of Tesco, London.
Fresh & Easy, with headquarters in El Segundo, Calif., opened its first stores in Nov. 2007 and has 200 locations in California, Nevada and Arizona. The company employs more than 5,000 people, including 1,300 at its distribution and manufacturing facilities in Riverside.
Los Angeles-based Yucaipa is a major investment firm that has established a record of fostering economic value through the growth and responsible development of companies. Founded in 1986 by Ron Burkle, the firm has completed mergers and acquisitions valued at more than $30 billion. As an investor, Yucaipa works with management to strategically reposition businesses and implement operational improvements, resulting in value creation for investors.