Market Basket: What's It Worth?

As Arthur T. Demoulas offers to buy out 50.5 percent stake to take control, valuation – and family politics – are tricky

Even had the feuding Demoulas cousins not been at each other’s throats for three decades, and even if the 25,000 employees of Market Basket weren’t in open revolt against their new leaders, ousted CEO Arthur T. Demoulas and cousin-nemesis Arthur S. Demoulas would have no easy time deciding: What’s the 71-store chain worth?

In the latest twist in the stunning drama that is Market Basket, Arthur T. Demoulas, fired last month when a pro-Arthur S. faction gained control of the company and board, made public an offer to buy out the 50.5 percent of the company that Arthur S. Demoulas and his allies control. Arthur T. would not say how much he offered, and Arthur S. and the company have not made any response to the bid.

According to The Business Reference Guide published by Business Brokerage Press, grocery businesses are commonly valued at 15 percent of annual sales, plus the value of inventory on hand. For Market Basket, with reported annual sales of $4.6 billion, that would suggest a value of around $700 million to $800 million.

But experts like The Griffin Report have appraised Market Basket at more like $3 billion to $3.5 billion. One big reason? Data from The Warren Group analyzed by The Boston Business Journal show Market Basket and affiliated entities have huge real-estate holdings, exceeding 15 million square feet of land in Massachusetts alone, where the chain and affiliates own outright 29 of 42 store locations.

"Even if the Market Basket went under completely, that real property is of enormous value" in calculating what Arthur T. would have to pay the Arthur S. group faction to gain control, attorney Stephen Chow of Burns & Levinson LLP, a former Massachusetts Bar Association business section co-chair, said in an interview Thursday afternoon.

Just valuing real estate gets even messier when you consider three completed but never-opened Market Basket locations, stores in Attleboro and Revere that are finished off and one largely completed in Waltham – their grand openings held hostage to the Arthur-vs.-Arthur imbroglio. "Who’s going to be selling will say that that's worth an enormous amount," Chow said.

Then, how do you put a dollar value on passionate loyalty from 25,000 employees, who overwhelmingly say they love and will work their hearts out for Arthur T. – but hate and reject the co-CEOs brought in by Arthur S., Jim Gooch and Felicia Thornton? It seems clear that the productivity and customer service from employees, and the profits they generate for the company, would be far higher if they are led by Arthur T.

"Clearly here, the loyalty of employees is very much involved in the value of the company, because this company can't seem to move, continue operating effectively, with the employees being so loyal to Arthur T.," Chow said. Putting together those and other factors, Chow said, "I think it's very complicated, and they may not be able to agree and may have to call in some legal decision maker or some arbitration" to establish a total value for the company and what Arthur S.’s group deserves for its 50.5 percent stake.

Finally, one huge unanswered set of questions: How much debt might Arthur T. and the surviving company have to take on for a successful buyout of the Arthur S. group? How much would it cost to service that debt? How much would that negative affect what employees love – frequent and generous bonus checks – and what customers love, some of the lowest grocery prices in Eastern New England.

That, of course, assuming the feuding cousins can bury 30 years of animosity, lawsuits, and firings and agree to terms and do a deal.

With videographer Scott Wholley

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