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Market Basket Case: How a Billion Dollar Family Business is Tearing Itself Apart

September 11, 2014

Posted in Business Litigation, Business Start Ups, Corporate Law, Partnership Law

It’s commonly said that there’s no loyalty these days. The drama that enfolded this summer around a Massachusetts based grocery store chain shows how little loyalty (and how much damage) warring factions of a family have towards each other and how much loyalty employees and customers can have to a fired CEO.

Market Basket is a chain of 71 grocery stores in Massachusetts and New Hampshire that was employing about 25,000 people, started by the Demoulas family. In July Artie T. Demoulas was fired as CEO and replaced by his cousin Arthur S. Demoulas (both grandsons of founder Arthur Demoulas nearly a century ago).  Soon after Arthur took control, the board of directors approved a $300 million shareholder payout.

This fed the fears of employees who benefit from a substantial profit sharing plan whose bonuses allow Market Basket employees to potentially make twice the average grocery store industry pay. They saw this as the first move away from a management style that was focused on employees and customers towards one focused on a higher return on investment for shareholders.

While Artie’s future was in doubt and after he was fired, employees went on strike and customers boycotted the stores. While stores were open, shelves were bare and there was little work for those who broke through picket lines. Though the company was very profitable prior to the strike, despite prices often lower than the competition, it lost an estimated $10 million a day during the strike.

The Boston Globe obtained four years’ worth of board of director minutes and they demonstrate the bad blood and bitterness between the members. One board member is quoted as saying, “”Everything theoretically here works until we try to put it in a practical application…(a)nd then it blows up because of the contentiousness of the two families.”

The issue was resolved in a way that’s very common when a family owned business is paralyzed by fighting factions: one side bought the other side out. In late August it was announced that Arthur S.’s side of the family agreed to sell its share of the business for $1.5 billion to Artie T.’s side of the family.

Employees rejoiced, customers came back to the stores and the shelves were filled again. How much debt is involved in the deal is unknown, according to the Boston Globe, but Artie T. has stated they could go $550 million in debt and mortgage properties the company owns to pay for the deal. Whether paying that back will put a crimp in Market Basket’s past practices of low prices and high employee pay remains to be seen.

Your family owned business may not be nearly as large as Market Basket, but if differences are threatening its future or family members are in open revolt against management, contact my office so we can talk about what’s going on and how your interests can be protected now and in the future.