Alon Israel Oil Company Ltd., which owns the Mega supermarket chain, is on the way to dissolving its partnership in the Eden Teva Market organic food chain and firing Guy Provisor, its cofounder CEO. Through Mega, Alon Israel owns 51% of the shares in Eden Teva Market, while Provisor owns the other 49%.
Sources inform "Globes" that Alon Israel recently notified Provisor of its wish to dissolve the partnership, and offered him three alternatives: buying Mega's 51% stake in Eden Teva Market, selling his shares to Mega, and the sale of Eden Teva Market to a third party.
At the same time, in view of the measures recently adopted by Provisor, Alon Israel wants to replace him as CEO if none of the three alternatives takes place soon.
An unrealized vision
The deal to acquire control of the organic food chain took place in the fourth quarter of 2007 under Alon Israel's previous management, when minority shareholder David Wiessman was CEO of the group. The group paid NIS 22.5 million for its controlling interest.
At the time of the acquisition, the group boasted that it had acquired "one of Israel's largest retailers of organic products." Eden Teva Market, which then had only two branches, now has 20, 11 of which are in Mega branches. Opening the stores increased the chain's sales volume, but its performance fell short of expectations.
Figures obtained by "Globes" show that in addition to not making a profit, the chain absorbed investment, while posting losses of NIS 13-20 million, and was unable to service its debt. Its annual sales volume was about NIS 400 million.
"No such animal"
The original agreement between Mega and Provisor included a clause ensuring that Provisor's holding would not be diluted, and that Mega would provide any cash injections required by Eden Teva Market.
Sources inform "Globes" that Mega injected a cumulative NIS 90 million in the chain over the years as an owners' loan in order to pay for the chain's losses and development expenses. Provisor recently demanded a further injection by Mega, but new Alon Israel CEO Avigdor Kaplan decided that things had to be put in order first.
The sources said that Kaplan had studied the chain, and had realized that in addition to the problems involved in a unilateral injection of funds, structural and strategic steps were needed to make the chain profitable, headed by a merger of some its business with Mega.
While negotiations were taking place between the parties, Provisor took several actions. First, he halted payments to some of the chain's suppliers, which then halted their deliveries of goods. The halt in payment caused Mega to inject several million shekels into Eden Teva Market a few days ago. Mega declined to disclose the exact amount of the injection.
Last week, despite this partial injection, Provisor completely halted orders of goods for the chain - a measure liable to detract from its business in the short term. An Alon Israel source accused Provisor of "trying to leave Eden Teva Market high and dry."
A promising future
Alon Israel is not giving up. Under the agreement, it can fire Provisor as CEO. Furthermore, Provisor has no veto over the sale of activity to a third party. If this takes place, the proceeds will be used to repay debts.
Another measure under consideration is forcing a dilution of Provisor's stake in the chain. Alon Israel believes that Eden Teva Market is a good brand name, and that if the chain is properly managed, it has a promising future.
Provisor said in response, "No negotiations with Alon Israel for a sale of shares are taking place. Selling my shares isn't on the agenda. All of the chain's business for the past eight years has been with the approval of the company board of directors, which expressed its full support for company management through this period. The halt in orders from suppliers was done with the board's knowledge. Company management is waiting for approval by the board for a renewal of orders from suppliers."
Provisor declined to respond to the other questions raised in this report.
Published by Globes [online], Israel business news - www.globes-online.com - on May 4, 2015
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