| NEW YORK
NEW YORK Fresh Market Inc TFM.O has signed a deal to be acquired by Apollo Global Management LLC (APO.N) for about $1.36 billion in cash, as the moribund U.S. specialty grocery retailer looks to the private equity firm for a turnaround.
The deal, announced on Monday, comes six years after Fresh Market went public as one of the pioneers of the fast-growing specialty and organic food retail sector, but it struggled to keep up with Whole Foods Market Inc (WFM.O) at the high end of the market while being squeezed by Wal-Mart Stores Inc (WMT.N) on the cheaper end.
Meanwhile, large rivals such as and The Kroger Co (KR.N) have improved their organic and specialty lines, allowing shoppers to buy both their staple and specialty groceries in one stop at reasonable prices.
For Apollo, it is the latest move in the grocery sector, where it has made money on previous deals, helping stores spruce up their offerings and cut prices.
The private equity firm clinched a deal for Fresh Market with a $28.50 per share cash offer that was first reported by Reuters on Friday. This represents a premium of 24 percent to Fresh Market's Friday close.
Fresh Market said on Monday its board had unanimously approved the deal. Chairman and founder Ray Berry recused himself from all discussions related to a review of strategic alternatives it announced in October, and from subsequent voting on the deal, the retailer said.
Reuters had earlier reported, citing sources, that Berry was himself considering taking the company private.
Berry and his son Brett collectively own 9.8 percent of Fresh Market's outstanding shares, and will retain that stake in the deal with Apollo, the company said.
At a time when volatility in the credit markets has made obtaining leveraged buyout financing difficult for private equity firms, Apollo took advantage of a recent rebound in the high-yield bond market to help finance the deal.
The transaction will be financed primarily through the proceeds of issuing $800 million in new senior secured Fresh Market notes and about $525 million in cash from Apollo and its co-investors, the company said. One of the co-investors is George Golleher, a former CEO of Smart & Final Stores Inc (SFS.N), who has worked previously with Apollo.
Fresh Market is Apollo's third major U.S. acquisition this year. Last month it agreed to buy U.S. security company ADT Corp ADT.N in the biggest leveraged buyout of the year so far.
Apollo also agreed to acquire for-profit education provider Apollo Education Group Inc (APOL.O) for $1.1 billion in February, funding that deal without any borrowing.
Apollo is a veteran investor in the specialty food retail sector. The New York-based private equity firm made roughly 10 times its $200 million investment in U.S. West Coast grocery chain Sprouts Farmers Market Inc (SFM.O), which it acquired in 2011 and took public in 2013.
With Fresh Market, Apollo is expected to use the same strategy of cutting prices and improving merchandising that it deployed at Sprouts. That would mean bolstering Fresh Market's dry grocery, health and body products and nutritional supplements offerings. It may also update the chain's prepared food products and expand its organic food offerings.
Same-store sales at Fresh Market, which operates 183 stores across 27 states, have declined in the past three quarters.
Apollo's other experience in the food retail sector includes Smart & Final, a grocery and cooking equipment warehouse retailer. Apollo purchased Smart & Final in 2007 in a deal valued at $813 million, including debt. It sold Smart & Final to private equity firm Ares Management LP (ARES.N) in 2012 for $975 million, including debt.
Apollo considered buying Fresh Market before the grocery chain opted to go public in 2010, sources familiar with the situation said, asking not to be named because the matter is confidential.
Fresh Market said it had a 21-day period to solicit superior offers. Reuters had previously reported that Kroger, the largest supermarket chain in the United States, was among the bidders for Fresh Market. Kroger declined comment on Monday.
J.P. Morgan Securities is financial adviser to Fresh Market, while Barclays, RBC Capital Markets, Jefferies and Macquarie Capital are advising Apollo.
(Reporting by Lauren Hirsch in New York; Additional reporting by Subrat Patnaik and Siddharth Cavale in Bengaluru; Editing by Sriraj Kalluvila and Bill Rigby)