Tesco puts U.S. grocery chain in bankruptcy, seeks sale


By Tom Hals

Sept 30 (Reuters) - Britain's Tesco Plc put itsU.S. grocery store chain into bankruptcy on Monday as part of aplan to sell most of the 167 stores to a private equity firm ledby billionaire Ron Burkle.

The bankruptcy ends the grand entrance onto the U.S. stageof Britain's biggest supermarket chain. When Tesco launched thechain in Arizona, California and Nevada in 2006, many expectedthe deep-pocketed company to quickly expand to challenge thedominant U.S. food retailer, Wal-Mart Stores Inc.

But Tesco jumped into the U.S. Southwest just as theregion's sizzling real estate market began to cool, and the U.S.business never generated a profit, according to Bankruptcy Courtdocuments.

Under the proposed sale, an affiliate of Tesco will lendBurkle's private equity firm Yucaipa Cos $120 million to helpfund the takeover of the chain, Fresh & Easy Neighborhood MarketInc. Yucaipa anticipates acquiring and operating 150 stores.

Tesco has said the stores that are not sold will be closed.It has said about 4,000 jobs will be preserved out of 4,187current employees.

A unit of Tesco will end up with a 22.5 percent stake in theYucaipa affiliate that acquires the grocery store chain,according to documents filed in the U.S. Bankruptcy Court inDelaware.

The proposed sale to Yucaipa will serve as a leading bid ina court-supervised auction, which Fresh & Easy said it plans tohold on Nov. 11. The company asked the court to schedule ahearing on Nov. 13 to approve the sale.

Tesco spent $610 million in the first two years building thebusiness, and sales eventually grew to $1.2 billion annually,according to court documents.

But the business was never able to support thetop-of-the-market leases, and it was losing $22 million a monthover the past year, according to the documents.

Bankruptcy will allow Fresh & Easy to reject or renegotiateleases that are no longer economical.

The company's biggest creditor is Tesco, which is owed $738million. Tesco has taken a 1 billion pound (or $1.6 billion)writedown on the U.S. chain.

Fresh & Easy also owes $18.4 million to vendors.

The Chapter 11 bankruptcy filing comes as Tesco is in themidst of $1.6 billion turnaround plan. Once the envy of Britishretailers, Tesco has been hurt by falling profits, a costlyretreat from the U.S. and Japanese markets, and revelations that horsemeat had been found in some meat products sold by Tescoand other retailers.

The case is In Re: Fresh & Easy Neighborhood Market Inc,U.S. Bankruptcy Court, District of Delaware, No. 13-12569.

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