Mega owes NIS 1.3b

Mega store  photo: Eyal Yitzhar
Mega store photo: Eyal Yitzhar

Supermarket chain Mega lost NIS 436 million in 2014 and NIS 87 million in the first quarter of 2015.

As part of its petition today to the Central District Court for the convening of a creditors meeting within two weeks, Mega unveiled the recovery plan that it intends to present to the meeting for approval. The plan states that the company owes NIS 1.36 billion, including NIS 705 million to suppliers and service providers and NIS 585 million to the banks and credit companies. Meanwhile some suppliers, among them Osem and Diplomat, have stopped supplying the chain.

The recovery plan will include rescheduling the debts to the suppliers, the lessors of properties from whom the chains' branches are rented, and the banks. Under the plan, the controlling shareholder in Mega, Alon Holdings Blue Square - Israel Ltd. (NYSE: BSI; TASE: BSI), will inject NIS 120 million into the company and lend it NIS 100 million more. The controlling shareholder will also give up a large proportion of the shares it owns in Mega.

Now that the chain has already come to an agreement with its employees and the Histadrut (General Federation of Labor in Israel), the company is asking the court to summon a creditors meeting in order to obtain approval for the recovery plan it has devised. The recovery plan includes terminating the employment of 1,000 workers (some in a voluntary retirement program), the closure of 32 branches, streamlining at company headquarters and in its commercial and logistics systems, the above-mentioned NIS 120 million cash injection and NIS 100 million loan, and what the company calls debt rescheduling by the suppliers, lessors of properties, and banks.

Mega emphasized today that the plan "does not include writing off debt; only a change in the date of payments and rescheduling them." The details of the plan, however, do not support this interpretation. The interest payments proposal to the suppliers is 2% and unlinked, a rate that some are likely to say amounts to writing off debt. Furthermore, the property owners leasing commercial space to Mega will have to cut their rent by 5%.

The court petition paints a picture of the chain's growing losses in recent years. According to the figures, Mega lost NIS 45 million in 2011, NIS 65 million in 2012, NIS 130 million in 2013, and the colossal amount of NIS 436 million in 2014. The first quarter of 2015 is also far from encouraging for Mega - an NIS 87 million loss.

Advocates Amir Bartov, Danit Rimon, Yossi Mandelbaum, and Yoni Steinmentz from the Lipa Meir & Co. law firm, who presented the petition on behalf of the chain, emphasized the importance of saving the Mega chain from collapse. "This is Israel's second largest retail food chain, with nearly 200 branches spread all over Israel, and which has 5,700 employees," the lawyers told the court. "The chain maintains commercial ties with hundreds of suppliers, a large proportion of whom depend on it to survive. There is no disputing that saving Mega is not only necessary, but truly essential"

Suppliers with whom "Globes" spoke this morning said they were not inclined to agree to a rescheduling of debt, because so far Mega had not presented any convincing plan that would extricate it from the mire into which it was sinking. The same suppliers also estimate that in any case Mega will not transfer the payments due to them this week.

One supplier told "Globes", "The situation at Mega is far worse than the way it is described. The biggest problem at Mega is not the financial one but the non-existent consumer loyalty to the chain. The branches are empty, and day-to-day the situation continues to deteriorate. The hole keeps getting deeper. At present there is no plan. There is a plan with commitment on the financial side, but nothing that will make the chain start growing again. Even the sale of the AM:PM stores will not solve Mega's problems."

Published by Globes [online], Israel business news - www.globes-online.com - on June 29, 2015

© Copyright of Globes Publisher Itonut (1983) Ltd. 2015

Mega store  photo: Eyal Yitzhar
Mega store photo: Eyal Yitzhar
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