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WILMINGTON, Del. - The court overseeing the Chapter 11 case of Fleming Cos. Inc. has refused to let Albertsons Inc. out of supply contracts with the grocery wholesaler -- contracts that Fleming says are key to completing the sale of its wholesale business, reports Dow Jones.
The loss of the Albertsons contracts would mean as much as $10 million less in royalty revenue to Fleming, U.S. Bankruptcy Judge Mary F. Walrath said on Wednesday. Only 40 of Albertsons more than 2,300 stores are involved in the supply arrangements with Fleming.
Judge Walrath denied Albertsons' motion to be relieved of its obligations under the contract with Fleming, citing the short period of time that remains until the contracts are either sold as part of the wholesale business, or ended as irrevocably breached.
Fleming is expected to be back in bankruptcy court today, pushing for approval of its planned sale of the wholesale business to C&S Wholesale Grocers Inc., a $400 million deal.
The Albertsons contracts were on a list to be cleared by the bankruptcy court for sale to C&S Wholesale, Dow Jones reports. But Fleming withdrew its motion to take over the contract with Albertsons and some other customers that are disputing its rights to sell their agreements, and will continue to try to resolve the issues around those contracts, Fleming's lawyer said.
C&S Wholesale planned to sell the Albertsons contracts and some other assets to Associated Wholesale Grocers Inc. of Kansas City, Kan., Dow Jones reports.
While no term of the sale agreement depends specifically on holding on to the Albertsons contract, an unfavorable ruling Wednesday could have caused C&S Wholesale to unravel its agreement to buy Fleming's wholesale business, Fleming chief restructuring officer Edward Stenger testified.
"My sense is, if AWG falls by the wayside, that's a pretty good reason for them to reconsider the deal," Stenger said.
Judge Walrath said she was not convinced loss of the Albertsons contracts would endanger the deal with C&S Wholesale. But terms of that deal call for Fleming to collect a 1 percent royalty revenue on sales to customers sold as part of the sale of the wholesale business, and the Albertsons contracts are a significant piece of that.
Albertsons still has the right to challenge Fleming's right to sell its contract to C&S Wholesale, and is asking $4 million in arrearages to cover lost customers and other alleged damage from the wholesaler's breach, according to Dow Jones.