Posted on: Thursday, November 27, 2003

Fleming hopes to hold on to last unit

By David Koenig
Associated Press

DALLAS — Bankrupt distributor Fleming Cos., stripped of its core grocery supply business, wants to survive as a scaled-down provider to convenience stores, according to lawyers in the case.

The Lewisville, Texas-based company, however, is continuing to explore the possible sale of its last remaining operating division, called Core-Mark International Inc., a company spokeswoman said yesterday.

Fleming was once among the nation's largest distributors of food and other supplies to stores. The company filed for Chapter 11 bankruptcy protection April 1, soon after cutting ties to its biggest customer, Kmart Corp.

Before the bankruptcy it had been Hawai'i's largest grocery supplier. Fleming's customers included Foodland Super Market Ltd., Times Super Market, military commissaries and Daiei.

On Monday, the company and its creditors will give a federal bankruptcy judge in Delaware a plan to pay Fleming's banks $325 million of the approximately $600 million they are owed. Lawyers for both sides said they expect U.S. Bankruptcy Chief Judge Mary F. Walrath to approve the payment.

"This clears the way for us to get the plan going, reorganize Core-Mark and get it out of bankruptcy. That's the goal of the unsecured creditors," said Robert Hertzberg of the Pepper Hamilton law firm, co-counsel for Fleming's creditors.

The partial payment to the banks also saved the company interest payments of nearly $1 million a month, Hertzberg said.

One of Fleming's lawyers said the company still hoped to emerge from the Chapter 11 proceedings with its convenience-store supply division intact.

"We do not believe that Core-Mark will be liquidated," said Geoffrey Richards of Kirkland & Ellis. "Core-Mark has a very strong, viable ongoing business, and it will continue to operate. Core-Mark has certainly been the healthiest of the company's three divisions."

The company is continuing to solicit bids for Core-Mark, but no decision has been made whether to sell the San Francisco-based unit, a Fleming spokeswoman said.

Fleming has sold its main business, a wholesale grocery supply operation, and a retail division that once operated more than 100 discount grocery stores. The company acquired Core-Mark last year in a bid to expand its reach into the convenience-store market.

The Securities and Exchange Commission is investigating Fleming's accounting and trade practices.

Fleming's problems also threaten suppliers Frito-Lay Inc., Kraft Foods Inc. and Dean Foods Co., who also may face legal action by the SEC. This month the agency told the suppliers it was examining whether they helped Fleming artificially book revenue more quickly.