Leases that Outlet Co. assigned to the buyer of 91 of its retail stores last fall should not be considered stumbling blocks to a proposed merger in which it would be acquired by Coca-Cola Co. Inc., Outlet said yesterday.
Earlier yesterday, Coca-Cola said the effect of a recent bankruptcy filing by United Department Stores of Trenton, N.J., purchaser of the Outlet stores, will have to be "evaluated." Coca-Cola issued a statement after published reports that it was concerned that Outlet may be contingently liable for future payments on certain store leases that were assigned to United Stores.
A Coca-Cola official reached at the company's headquarters in Atlanta yesterday declined to be more specific. However, he did say that Coca-Cola "reaffirms that the terms of its agreement with Outlet will be evaluated after the outcome of an audit of Outlet and a review of its business."
Outlet is a Providence-based broadcasting company with retail interests in women's specialty stores. It operates six radio stations, including Washington's WTOP-AM, and five television stations.
In recent years, losses in its retail division have dragged down earnings, although the broadcast division has reported record profits in each of the past seven years.
After assessing further declines in its retail divisions two years ago, Outlet decided to concentrate on broadcasting and de-emphasize retailing, a decision that led to the sale of 91 stores to United Stores last year.
United Stores has since filed a petition under Chapter XI of the federal bankruptcy law, a step that would protect it from creditors while it attempts to reorganize.
Outlet yesterday dismissed any notion that the leases assigned to United Stores would pose a problem in a merger deal with Coca-Cola.
"In our judgment, they aren't that much of a problem," said Howard Kay, director of corporate affairs for Outlet.
Kay said Outlet is the guarantor of only 25 or 26 of the 91 leases that were assigned to United Stores last October.
"Most of those leases--probably all of them--can be turned around rather quickly, or they could be leased to others," Kay said. "As far as we're concerned, those leases can be turned over quickly."
Kay said most of the stores in question are in "choice locations."
Coca-Cola became interested in acquiring Outlet after agreeing to buy Columbia Pictures Industries Inc., which previously had agreed to take over Outlet.
Columbia made it clear that it wasn't interested in owning any retail operations and stipulated in its agreement with Outlet that it sell its remaining stores. Although Coca-Cola has not made a similar demand, Outlet is still required to sell its remaining retail properties, Richard Gallop, senior vice president and general counsel for Columbia, said yesterday.
Outlet has until October to get rid of its Cherry Webb Touraine Stores division--a specialty chain of 68 stores that include the Philipsborn stores in metropolitan Washington and Flair Stores in Richmond.
Kay said Outlet is holding talks with several potential buyers and that there is a "strong likelihood" the remaining retail properties "will be sold very shortly."
Meanwhile, a spokesman for Coca-Cola said his company's proposed acquisition of Columbia is "unaffected" by developments related to Outlet and that a merger will proceed independently of the Outlet transaction.