Entrepreneur & Investor.
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sale of save mart

Issue #96: Sale of Save Mart

NOTE: this was a past issue of my weekly newsletter, Timeless Gems. Join my free mailing list so you don’t miss out on future issues.

There was an interesting story in the Financial Times this week about a dispute between a family and a private equity firm. The family sold their business, Save Mart – a grocery chain, to the PE firm, however, after the closing, the PE firm claimed that the family owed them $109m.


  • Seller and buyer agree to a purchase price of $245m, cash-free debt-free basis
  • Seller would sweep the $200m cash on Save Mart’s balance sheet and either pay off all of Save Mart’s remaining debts or have any remaining debts deducted from the $245m purchase price
  • Save Mart also owns a majority stake in another business called Superstore Industries – and this subsidiary had $109m debt on its books (but the debt was not technically on Save Mart’s books)
  • The deal is closed, but the $109m subsidiary debt isn’t paid off or deducted from the purchase price
  • After the closing, the PE firm demands the family pay them $109m to cover the subsidiary’s debt

This is an interesting case study in both dealmaking and Delaware contract law. The article has taken the side of the seller, but the courts have taken the side of the buyer. The family is ordered to pay the PE firm $109m.

It’s important to note that, though Superstore Industries wasn’t wholly owned by Save Mart – Save Mart did guarantee their $109m debt. So one could argue that Superstore’s debt was also Save Mart’s debt.

Another important note is that Save Mart used the equity accounting method to account for Superstore, as opposed to a full consolidation, which masked the $109m debt (fun side note: this is also how Enron hid a ton of debt via its various unconsolidated subsidiaries).

If the Sellers knew that “debt-free” meant the subsidiary’s debt too, would they have accepted the $245m valuation? Or were they trying to pull a fast one on the buyer?

Did the Buyers know that a $109m price reduction pre-close would have killed the deal? So they viewed the post-close claim as an option for additional value?

What do you think of this case? Who is in the wrong here?