Investor Ron Burkle Cashes Out For A 200% Return On $98 Million Investment in Whole Foods Market

Seven degrees of Ron Burkle: Grocer, investor, philanthropist and man about town. [Photo Credit: Cityfile.com]

On February 16 we wrote in this piece [Ron Burkle's Rather Excellent One Year Investment Adventure With Whole Foods Market] about investor and supermarket industry veteran Ron Burkle's beyond excellent return (on paper) of his $98 million investment in Whole Foods Market, Inc. in just a hair over one year. (Also see the links to past stories about Ron Burkle at the link above.)

This week we learned that Burkle and his Yucaipa Companies investment firm's return on his January 2009 $98 million investment in Whole Foods, through his Yucaipa Companies is no longer - at least the majority of it - just on paper.

According to Yacaipa, Burkle has sold the majority of his shares in Whole Foods, which represented an about 7% ownership stake in the natural grocery chain, for a return of about 200% Not bad for a year's worth of investment.

In our February 16 story we suggested Burkle might sell most or all of his Whole Foods stake soon because he's currently extremely busy tending to his about 19% ownership stake in book retailer Barnes & Noble, not to mention the myriad of other investments Yucaipa has.

Burkle has been selling off the Whole Foods shares for about the last month or so as the natural grocer's share price has continued to soar.

Among Burkle's activities vis-a-vis Barnes & Noble has been a campaign he's launched to be allowed to buy additional shares in the bookseller, something its board and CEO have been blocking.

Apparently they fear an activist shareholder who puts his money behind his ideas and strategies for making what has become a laggardprimarioy bricks-and-mortar book retailer, under fire from Amazon.com and other online book retailers, a potentially better performing one. Barnes and Noble sells books online but hasn't been able to compete in any significant way with Amazon.

Burkle has told Barns & Noble's board he wants to buy up to about 38% of the company. They have put in a provision which prohibits any outside investor from acquiring more than a 20% ownership stake.

Burkle is also interested in taking a substantial stake in the storied New York City retailer Barneys. He's bought some of the struggling apparel retailer's debt and has told its foreign owners, Dubai's Istithmar World investment firm, that he is interested in lending the firm, which has been hit hard by Dubai's financial meltdown, $50 million in return for taking control of Barney's, which Burkle thinks he can return to its glory days.

The Dubai investment firm bought Barney's in 2007 for about $900 million.

Based on his track record in the supermarket retailing industry, we think if he acquired Barney's, Burkle would first invest in it, like he did when he acquired the various chains to comprise Ralphs/Food 4 Less, which he eventually sold to Kroger Co. in the 1998's for $13.5 billion.

He likely then would cut costs, in part by wringing as much cost as he could out of Barney's supply chain, something he knows a thing or two about doing in the retailing business.

We think Burkle would also extend the Barney's brand, both into opening new stores in key U.S. markets and perhaps even selectively overseas, as well as into other forms of business. The Barney's brand still has considerable equity.

After doing these and other measures, operating Barney's for a few years, it's likely Burkle would then take the company public, which could result in substantial profits if all went well in the process we describe above.

But meanwhile Burkle has exited, at least for the most part, Whole Foods Market - and done so with a nice 200% return on his $98 million investment.

He's not out of the supermarket industry investment game completely though: Burkle owns 30% of the A&P supermarket chain and is playing a major role in the east coast grocery chain's strategy, along with how it's being managed. Remember, he's an activist shareholder, and with a 30% stake he should get involved in a hands on manner.

Burkle's Yucaipa has about $9 billion worth of investment funds, according to the firm. Among its investors are two of California's biggest pension funds.

Burkle lives in Southern California and New York City. His personal worth is estimated at $3.2 billion, according to Forbes magazine, which lists him in its storied richest people in the world ranking.

Look for Burkle - who grew up in the grocery business, starting as a bag boy at Southern California's Stater Bros. grocery chain then eventually moving into a vice president position there before leaving to start Yucaipa - to make new investments in the supermarket industry. It's not only the business where he made his first and major fortune - it's also in his blood.

Ron Burkle's Rather Excellent One Year Investment Adventure With Whole Foods Market

It's been just over a year since legendary supermarket industry magnate, investor, philanthropist and friend of Bill Clinton, Ron Burkle (pictured at left), acquired a 7% stake (9.8 million shares) in natural-organic foods grocery chain Whole Foods Market, Inc. Burkle reported his stake in a SEC regulatory filing on January 8, 2009.

During the about two month period from late November 2008 -to- early January 2009 in which Burkle made his investments in Whole Foods' common stock through his Yucaipa Companies' investment firm, the natural-organic foods grocer was aisle-deep in two key struggles: it's battle with the U.S. Federal Trade Commission (FTC) over the acquisition of Wild Oats Markets Inc.; and a loss in sales due to the economic recession.

As a result of these two key factors, Whole Foods' stock share price ranged from $9.97 per share (November 24, 2008) to $10.01 per share (January 7, 2009) during the period when Burkle made his $98 million worth of stock purchases, resulting in the 7% total ownership stake in the company. We will call it an average of about $10 per share.

Today, a mere year later, Whole Foods Market. Inc. reported a whopping 79% increase in earnings for its first quarter fiscal year 2010 over the same period in 2009.

Additionally, first quarter 2010 sales increased 7% to $2.6 billion, compared to the same quarter last year. Further, same store sales, which are a key measure of a retailer's health, increased by 2.5%. Complete details are here.

Whole Foods' first quarter sales and profits report announcement today sent the natural-organic grocery chain's stock share price soaring. At the end of business today Whole Foods Market, Inc. stock was trading at $32.95 per share.

The stock has been growing like naturally-fertilized clover over the past 12 months. The 52- week low is $9.06. The 52-week average high is $34.40 per share.

Ron Burkle's excellent one year Whole Foods Market adventure

Speaking of naturally-fertilized clover, Ron Burkle is certainly waist deep in it in terms of his about 13 month profit in Whole Foods Market, Inc. stock.

Based on the average price of $10 per share he made from late November 2008 -to- early January 2009, the supermarket magnate and investor has more than tripled the value of his $98 million stake in Whole Foods in just slightly over a year.

Based on the $10 per share average purchase price, at today's $32.95 per share close, Burkle has seen a whopping per share increase of $22.95. Not bad for a one-year investment adventure.

Trust in Whole Foods board, senior management

In this story [Retail Memo - Exclusive: Supermarket Industry Investor Ron Burkle Looking For A Seat On Whole Foods Market's Board of Directors] on January 16, 2009, we reported that Ron Burkle was interested in seeking a seat on Whole Foods Market Inc.'s board, based on his 7% stake in the company.

However, to date Burkle has been satisfied to be a passive investor in the natural-organic grocery chain - a position that has obviously paid off for the supermarket industry investor.

We stick by the January 2009 report that Burkle did have an interest, however strong or weak, in possibly joining the board. But it obviously wasn't something he has pushed, since if he did we doubt Whole Foods would deny him a spot. And if the grocer did, we would have heard about it. We haven't.

Historically, Burkle has been what's referred to as an activist shareholder, an investor who buys a substantial stake in a company and then participates in some way in its operations, generally as a member of its board and often times operationally. This has been especially the case for Burkle regarding his numerous investments and acquisitions in the food and grocery retailing industry.

But it appears to date that Ron Burkle has trust in Whole Foods' current board and senior management - a trust well-founded based on the growth of the investor's just over one year investment - and as such sees no need to join the board.

Burkle hasn't been a traditional passive investor when it comes to Whole Foods Market though. In fact, we are aware that over the last year Burkle has offered numerous ideas and suggestions, including involving Whole Foods value strategy, to the grocer's board members and senior management.

But of course Burkle isn't merely a investor in supermarkets - he has extensive operations experience as an food and grocry retailing executive.

He started out in the grocery retailing business as a bag boy for the Los Angeles-based Stater Bros. supermarket chain, where he eventually became a vice president.

In addition, Burkle was the board chair of Wild Oats Markets Inc., and was instrumental in the natural grocer's merger with Whole Foods.

Ron Burkle also put together one of the biggest supermarket chain's in the U.S. - Ralphs/Food 4 Less - which he eventually sold to Kroger Co. This was what earned him the 'supermarket magnate" nickname.

Burkle focusing on books not groceries right now

Interestingly, today Yahoo, of which Burkle is an investor and has been a member of the board of directors since 2001, announced that the investor is stepping down from its board because he wants to "devote more time to his other business interests."

In the statement, Yahoo Chairman Roy Bostock said: "Yahoo and its stockholders have benefited greatly from the counsel, insights and objectivity Ron has brought to the company during his nine years on the board."

The key business interest we think Burkle wants to devote more time to is his current investment focus on the Barnes & Noble book store chain.

Burkle recently disclosed in an SEC regulatory filing that his Yucaipa Companies investment firm has acquired a 19% ownership stake in the bricks-and-mortar and online book retailer. Additionally, in that filing Burkle said he would like to own as much as 37% of Barnes & Noble.

Barnes & Noble has an anti-takeover provision which makes it difficult for investors like Burkle to acquire majority ownership in the company, something that's been suggested he would like to do. However, if he can acquire as much as 37% (and even a bit less) of the bookstore chain, Burkle will have significant influence, including a seat (and maybe even chair) on the retailer's board.

It sounds to us like we will see the "activist shareholder" Burkle rather than the more passive investor Burkle when it comes to his run on Barnes & Noble.

In fact, his profits so far in Whole Foods Market, Inc. could provide a nice cash cushion should he decide to sell some shares for his investment in Barnes & Noble.

We have no information however that Burkle plans on cashing-in any part of or all of his investment stake in Whole Foods.

Either way, it's been a rather excellent 'One Year Whole Foods Market Investment Adventure' for the supermarket magnate.

We even suppose it's been an excellent enough one year adventure to make the legendary investor willing to take a crack at one of the most difficult retailing segments in U.S. - book selling.

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

Ron Burkle, billionaire supermarket industry investor and former bagboy for Southern California's Stater Bros. supermarket chain, is taking a long, serious look at making a major investment in fledgling grocery retailing and wholesaling giant SuperValu, Inc. we've learned.

Burkle, who founded and runs investment firm Yucaipa Companies, LLC and is a close personal friend of former President Bill Clinton (Bill's also an investor in Yucaipa and stands to make about $8 -to- $9 million when he cashes out of one of its funds soon) and a major financial supporter of Hillary Clinton's Presidential campaign, likes what he sees in SuperValu.

What is it he likes? In SuperValu, Inc., Burkle sees a major, multi-banner, multi-format grocery retailer and wholesaler that's stock share price is lower than it should be, has tons of valuable assets, has what looks like a viable turnaround plan, and could benefit from an infusion of cash to help with that restructuring and a large-scale store remodeling program it's in the middle of. SuperValu, Inc. currently has about $44 billion in annual sales.

These are similar attributes, assets and liabilities Burkle has spotted, and liked, in numerous supermarket chains in the past, leading him to invest, acquire, merge, restructure and then sell, making billions as a result.

Burkle's biggest deal with Yucaipa Companies (founded in 1986), which netted him a couple billion dollars of personal profit, began about 20 years ago and involved mutiple acquisitions over an eight year period (1987-1995).

Beginning in 1987, Yucaipa Companies bought Falley's Food-4-Less of Kansas City, Mo. for $35 million. Two years later in 1989 the company acquired long-time Southern California grocery chain Boy's Markets for $375 million. In 1991 Burkle added Alpha Beta, a leading California supermarket chain, to his fast-growing food retailing empire, paying $271 million for the grocery chain.

Then in 1994, the company acquired Phoenix, Arizona-based Smitty's for $138 million. That same year (1994) also saw Burkle making his biggest acquisition to date, the $1.5 billion purchase of Southern California grocery chain Ralph's Grocery Co. He wasn't finished yet though. The following year (1995) Yucaipa Companies acquired Chicago-based supermarket chain Dominick's for $750 million.

Over this eight year period, Burkle and a senior management team operated these various supermarket chains (acquisition-by-acquisition) as an integrated company of sorts, but yet each kept it's own identity, format and positioning in its respective markets. From 1995-1997, Burkle and his team integrated the desperate operations, slashed costs, closed poorly-performing stores, built some new stores, remodeled a number of others, and improved sales and profits as a result.

In 1997, Burkle merged Ralph's/Food-4-Less with Oregon-based Fred Meyer, Inc., creating the number two food retailing company in the Western U.S. after Safeway Stores, Inc. The combined company was named Fred Meyer, Inc.

Then the selling began. In 1998 Burkle broke the Dominick's chain off from Fred Meyer, Inc. and sold it to Safeway Stores, Inc. for $1.85 billion. Yucaipa paid just $750 million for the chain less than three years earlier. Then the BIG DEAL came: Kroger Co. agreed to buy Fred Meyer, Inc. for $8 billion. You can do the math; add up what Burkle paid for all the chains above, then subtract that from $9.85 billion, the combined sale price he fetched for Fred Meyer and Dominicks, and as you can see, he made a tidy profit.

After selling Fred Meyer, Inc. to Kroger Co.--the purchase which made Kroger the number one supermarket chain in the U.S.--Burkle focused primarily on making major investments with Yucaipa, both in and outside of the supermarket industry, rather than acquisitions.

He also nurtured his close friendship with Bill Clinton. In fact, when President Clinton left office after serving his last term, he joined Yucaipa Companies' board of directors at Burkle's invitation. He also became an investor in Burkle's various investment funds--hence the $8 -to $9 million payday the former President is due when he cashes out soon, according to experts who are aware that he plans on doing so.

Burkle's most recent payday came from the acquisition of Wild Oats Markets by Whole Foods Market, Inc., a merger Burkle helped to engineer as the largest private investor in Wild Oats, as well as being its most influencial member of its corporate board of directors.

Burkle netted a couple hundred million dollars from the sale of Wild Oats in September, 2007. That money has been burning a figurative hole in the pockets of the former bagboy, who later became an executive at Stater Bros. in Southern California.

From what we hear, Burkle is close to making a major investment in SuperValu. The grocery chain and wholesaler has been having rough times since the fourth quarter of last year. Sales have been down, although profits have actually been up slightly. The company also has been struggling for well over two years to integrate its huge acqusition of Albertsons, Inc. into its culture and operations. SuperValu's stock share price has been hovering near its all-time lows, which is perhaps its biggest problem, at least in the eyes and investment portfolios of Wall Street.

Just this week however, SuperValu, Inc. CEO Jeff Noodle announced a major restructuring and store remodeling plan that Wall Street analysts might like. Burkle loves to invest large sums of cash and then become a partner with company CEO's and senior executives in restructuring and streamlining operations as a way to increase a company's value. Noddle told investors on January 24 the company is on track to remodel 165 more stores under its "Premium, Fresh and Healthy" format model between now and next year.

At the January 24 investors meeting Noodle also announced additional new initiatives for the company's Sav-a-Lot small-format discount stores and for other parts of its retail operations. He also announced the closing of Supervalu, Inc.'s Sunflower Market stores, a three year-old experimental five-store chain of small-format natural foods stores with an emphasis on low prices.

Such initiatives are music to Burkle's highly-tuned investment ears. We aren't saying the billionaire will make a sizeable investment in SuperValu, Inc. for sure. What we are saying is he's looking very closely and seriously at doing so. Further, if he does make a major investment in the company, look for him to participate in an advisory capacity to Noodle.

SuperValu, Inc. is a huge grocery industry corporation with $44 million in annual sales. As such, Burkle isn't going to gain five or six percent ownership in the company like he did with Wild Oats, which was bought by Whole Foods Market, Inc. for less than $1 billion dollars. However, a cash investment of say $1 billion by Burkle would go a long way right about now in helping SuperValu with it's massive store remodeling program.

Even more important, a Burkle investment would be a positive signal to Wall Street and the company's institutional and private investors and stockholders. In fact, such an investment, especially with Burkle attached to it in some way, would likely give SuperValu, Inc.'s stock a nice per-share boost in the short term. Stay tuned.