Despite ‘Artie T’ Offer, Market Basket Remains At Standstill

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It’s been nearly two months since the Market Basket board of directors fired former chief executive officer Arthur T. Demoulas, setting off one of the most onerous family battles in supermarket history.

From a legal perspective, the onset of the battle dates back 20 years, when after years of litigation a Massachusetts Superior Court awarded operating control of Market Basket Supermarkets to the family of former co-owner, the late George Demoulas. George’s older brother, Telemachus “Mike” Demoulas served as the highly successful regional chain’s chief executive for more than 30 years until his death in 2003.

Fast forward to 2013. With control of the board of directors, George’s son, Arthur S. Demoulas, began questioning some of the practices and policies of then-CEO Arthur T. “Artie T” Demoulas (Mike’s son who was named CEO in 2008) concerning real estate (the company has vast real estate holdings) and the employee profit sharing plan. While the contentiousness between both first cousins continued, “Artie T” remained chief executive and the largest shareholder of the 71-store Tewksbury, MA retailer, despite minority control (his faction controls 49.5 percent of the voting stock).

“Black Monday” occurred on June 23, 2014, when the board voted to oust Arthur T. Demoulas and installed current directors James Gooch and Felicia Thornton as co-CEOs. From that point on, Market Basket has followed a path of self-destruction, a path current management surely could not have predicted. On that fateful Monday in June, the board also fired director of store operations Bill Marsden and VP-grocery sales and merchandising Joe Rockwell. Arthur T. Demoulas, Rockwell and Marsden together represented 110 years of experience at Market Basket. The next day, seven top executives at the regional chain resigned in protest.

What followed next was unprecedented. Thousands of associates, loyal to “Artie T,” mobilized and began a modified work stoppage that choked off the company’s supply chain from its distribution center and headquarters (both based in Tewksbury) to its 71 stores. Additionally, primarily through its “Save Market Basket” website, the protesting associates have effectively organized a consumer boycott creating a situation where virtually all of Market Basket’s stores contain little merchandise as picketers reinforce their boycott message to prospective customers.

During the past eight weeks there have also been several rallies led by the many disgruntled associates whose singular message has been: “expect more of the same until ‘Artie T’ is reinstalled as our leader.”

Gooch and Thornton have sent several letters to the associates stating that their jobs were in peril if they didn’t return. The most recent of these missives was sent on August 9 and included a notice to approximately 700 Market Basket employees that they would be viewed as having “abandoned” their jobs if they did don’t return to work by August 15.

The company’s seven-person board (which includes three independent directors) has said that it has been negotiating with several parties to potentially sell the high-volume merchant, whose sales exceed $4 billion annually. One of those bidders is Arthur T. Demoulas who already controls nearly half of the retailer’s equity. Financial analysts place Market Basket’s market value at about $3.5 billion. The board also offered to bring back “Artie T.”

In a statement released on August 9, the board said it would allow Arthur T. Demoulas to “return to work immediately to work collaboratively to stabilize the business on terms proposed by the independent directors of the Market Basket board if the Class B shareholders (Artie T’s faction) would commit to buy our interests. Our proposal, made last week, has not been accepted.”

A day later, a spokesman for Arthur T. Demoulas responded on his behalf: “Five weeks ago, these board members voted to fire Arthur T. Demoulas and banned him from company property. Since that time, the company has spiraled downward and Arthur T. has worked feverishly to purchase the company. On three separate occasions since that time, including as recently as yesterday (August 9), Arthur T. has offered in writing and otherwise to try to bring back his entire management team to work to stabilize the company. Each offer was rejected. It is disingenuous to issue a press at 5:30 p.m. on a Friday, from the ‘independent directors’ all of whom were appointed by Arthur S. Demoulas’ side of the family, announcing that they have invited him to rejoin the company, but not as CEO. This is an attempt to have him stabilize the company, while they consider selling it to another bidder. This is far too serious a situation for these games and attempts at window dressing. It is a serious issue that deserves a serious solution. Market Basket’s associates, customers, vendors and communities deserve better than that. Arthur T. Demoulas has provided a serious proposal which should be accepted.”

The board later acknowledged that it had agreed on a price to sell the company to “Artie T,” but said it cannot agree on terms, suggesting that “Artie T” is negotiating in bad faith

As we went to press, even Massachusetts Governor Deval Patrick inserted himself into fray, calling on associates to return to work while the process continues.

Once again, a quick response came from the “Save Market Basket’s” Facebook webpage: “For the few who may be confused, our message remains clear: we will go back to work when Arthur T. Demoulas goes back to work with full authority or when the deal is in place to sell him the company. We will not go back to work when the Governor, the board or any other entity tells us to.”

One New England-based food brokerage executive who has called on Market Basket for more than 30 years had perhaps the best summarization of the events of the past two months:

“It’s been said many times before – this is about power and greed. I’m not going to paint Arthur T. as a boy scout, but clearly he’s been a great leader at one of America’s most admired and respected supermarket companies. He really is the straw that stirs the Market Basket drink. How the board and Arthur S. could not have seen this is totally mind boggling. Sadly, the company is now losing millions of dollars a day and operating stores that are virtually without function. Whether you agree with boycotts from the associates and the consumers, it’s time for the board and particularly Arthur S. to acquiesce and get a deal done. It’s going to cost both Arthurs millions of dollar when this all ends. Why destroy a great organization when a solution seemingly could be so close at hand? Do you believe that if a company like Hannaford or any other retailer were to buy Arthur S.’ equity, things would dramatically change? All roads lead to Arthur T. However, even if he regains control, can the company ever recreate that special magic that it held for years? It would take weeks to reignite the supply chain effectively and the billions it would cost for Artie T. to acquire his cousin’s share might make it difficult to operate as efficiently as in the past. While the battle rages on, Stop & Shop, Shaw’s and Hannaford have seen very healthy same stores sales gain in the areas in which they compete with Market Basket. Don’t you think some of that business will remain with those and other competitors? On paper, this family war deserves to be dissected in as a case study at a business school. Sadly, real people and the communities in which they reside are being adversely impacted. There are few winners here.”