Friday, January 16, 2009

Retail Memo - Exclusive: Supermarket Industry Investor Ron Burkle Looking For A Seat On Whole Foods Market's Board of Directors

Legendary supermarket industry investor Ron Burkle (pictured at left), who revealed in a filing with the U.S. Securities and Exchange Commission (SEC) on Thursday, January 8 that he had bought a 7% stake in Whole Foods Market, Inc. through his Yucaipa Companies investment firm, is looking for a seat at the table, specifically a spot on Whole Foods' corporate board of directors, sources close to Yucaipa Companies tell Natural~Specialty Foods Memo (NSFM).

Based on the level of Burkle's stake in Whole Foods, the 7% ownership, combined with the fact he has decades of experience in the supermarket industry -- he started as a grocery bagger for Southern California-based Stater Bros. Markets, became an executive vice president for the grocery chain, then left to start his investment firm, where over the last couple decades he done some of the biggest deals in the food and grocery retailing business, including his cobbling together of one of the largest aggregations of supermarket chains into a whole and then selling the company, Ralphs/Food-4-Less, to Kroger Co. in the 1990's for billions -- it would seem reasonable for Whole Foods to give him a seat on the board if that's what he desires.

After all, the Leonard Green & Partners private equity firm, which bought 17% of Whole Foods Market, Inc. in December, 2008 for $465 million, has placed three people on the Whole Foods board as part of its investment. They include two members of the firm and the CEO of specialty retailer The Container Store, of which the firm is the major investor. Burkle's 7% ownership stake is more than a third of Leonard Green & Partners' 17%, from a board member-for-board member numerical perspective -- three seats for 17% for Leonard Green & Partners. Therefore from a purely numeric position he should be entitled to one seat on the board for his 7%, similar to Leonard Green & Partners' three seats based on its 17% stake in the company.

Burkle, who has donated millions of dollars to organizations working in the areas of education, worker's rights and underserved communities through his Ronald Burkle Foundation, also is far from a stranger to the Whole Foods-Wild Oats Merger. He stepped in and bought an 18% ownership stake in then independent Wild Oats Market, Inc. a number of years ago when it was on the ropes in terms of surviving.

As part of his 18% ownership stake in Wild Oats, Burkle took a seat on its board. He then led a successful campaign to oust Wild Oats' then CEO and replace him with one Burkle wanted. He also played a major operational role in restructuring the company. Burkle also engineered a deal with Kroger Co. in which the mega supermarket chain, which he held significant stock in at the time because of his sale of Ralphs/Food-4-Less to Kroger, sold Wild Oats' private label natural and organic products in all of its supermarkets, which added a nice, new revenue stream for the natural products retailer. Finally, Burkle acted as the primary driving force from the Wild Oats' corporate and investment side in engineering the acquisition of Wild Oats by Whole Foods in 2007.

Yes, you could say Ron Burkle , who among other things has made millions of dollars for his close friend former U.S. President Bill Clinton by making him an investor in Yucaipa Companies and hiring him as a special advisor to the firm, is far from a stranger when it comes to the Whole Foods-Wild Oats merger.

Whole Foods Market, Inc. has no comment on the suggestion that Ron Burkle wants a seat on the natural grocery chain's board. A Whole Foods spokesperson told NSFM the company knows nothing about it. Burkle's office also isn't confirming, nor did it deny, that Burkle wants a board seat based on his 7% ownership stake in Whole Foods.

Ron Burkle , who is one of the largest donors to the Democratic Party and endowed the Burkle Center For International Affairs at UCLA, of which he is co-chairman of, is an activist not a passive investor. For two decades his method has been to acquire or make substantial investments in supermarket companies (and other businesses) and then take a hands on approach with those acquisitions or investments, as is the case with the creation of Ralphs/Food-4-Less and his experience with Wild Oats Market, Inc. leading up to the merger with Whole Foods.

Burkle isn't a quick turn-around investor. He's willing to take time and participate in the restructuring and strategic building up of a food and grocery retailing company. However, the end game, regardless of whether it's two years or ten, is to eventually create his own exit strategy -- that's how firms such as his and Leonard Green & Partners make money -- which has historically been to either lead or participate in a merger or acquisition regarding the companies he invests in.

History generally is a pretty good indicator of current and future behavior. And in the case of Ron Burkle, there's no evidence he plans to be a passive investor in Whole Foods Market, Inc. with his current 7% ownership stake, which he has the financial ability to increase at any time.

Although we are the first publication to report Burkle's desire for a seat on Whole Foods Market, Inc.'s board, we suspect you will be reading about it elsewhere soon.

Natural~Specialty Foods Memo (NSFM) Reader Resource

More on Ron Burkle From NSFM:

>Retail Memo: FTC Asks Judge to Force Whole Foods to Put Most of the Wild Oats' Genie Back in the Bottle Pending A Resolution of its Merger Challenge

>Food & Politics Memo: Billionaire Supermarket Industry Investor Ron Burkle Makes Millions For The Clinton's Post-Presidency

>Retail Memo: [Heard on the Street]: Will SuperValu, Inc. Be Supermarket Industry Investor Ron Burkle's Next Play

>More on Ron Burkle: Click here to read a piece from August, 2007 about Burkle and the Whole Foods-Wild Oats deal. As a note: NSFM has been the only publication we've found to date to suggest in the past we could see Burkle making a major investment in the combined Whole Foods-Wild Oats. He did just that on Thursday, January 8, 2009.

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