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Published: 9/22/2010

<br>Records check contradicts Kaptur's ad on Iott's Food Town role

BY SHEENA HARRISON
AND TOM TROY
BLADE STAFF WRITERS
U.S. Rep. Marcy Kaptur's campaign ad faults her Republican opponent, Rich Iott, for the loss of 5,000 jobs when he was chief executive of Food Town. It closed after a takeover by Spartan Stores. U.S. Rep. Marcy Kaptur's campaign ad faults her Republican opponent, Rich Iott, for the loss of 5,000 jobs when he was chief executive of Food Town. It closed after a takeover by Spartan Stores.
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The campaign of U.S. Rep. Marcy Kaptur (D., Toledo) has gone to the airwaves accusing Republican opponent Rich Iott of running his former company, Seaway Food Town, Inc., "straight into the ground."

But a review of U.S. regulatory filings and Blade reports shows Miss Kaptur's assertion is false.

Records show Food Town's revenue and profit grew each of the five years Mr. Iott led the Toledo-area company. Furthermore, he likely had limited say-so within Spartan Stores Inc., the Michigan grocery company that acquired more than 70 Food Town-operated stores in 2000 and closed most of them in 2003. Many of The Pharm drugstores that were part of the deal were closed years later.

Mr. Iott was president and chief executive officer of Food Town from 1996 to 2000. He is challenging Miss Kaptur for her seat representing Ohio's 9th Congressional District in the Nov. 2 election. The operation and sale of the grocery store chain under Mr. Iott has become a major issue in the race.

Miss Kaptur's commercial, the first of her campaign, said, "Rich Iott took over Food Town from his father and ran it straight into the ground, selling it off for millions, closing our neighborhood stores, and costing 5,000 people their jobs, their health care, their retirement."

The ad drew condemnation from Mr. Iott, whose campaign labeled it a "blatant lie," and promised to file a complaint with the Ohio Elections Commission. However, as of Tuesday, no complaint had been filed.

The Kaptur campaignTuesday justified its TV ad, saying Mr. Iott made a bad decision to sell to a company that had little experience in running grocery stores.

"He claims to be a job creator, but the fact is he made a terrible strategic decision that cost 5,000 people their jobs. He pushed the sale of Food Town and now he's trying to deny responsibility," said the Kaptur campaign's new spokesman, Mary Chris Skeldon.

Matt Parker, spokesman for the Iott campaign, called Mr. Iott "a successful businessman and job creator," adding, "Marcy Kaptur has been misleading voters about Rich Iott's record as CEO of Food Town in a deliberate effort to distract voters from her own abysmal record."

A look back at company documents and Blade reports before, during, and after the Food Town sale provides a clearer picture of Mr. Iott's fiscal leadership of Food Town and his limited role within Spartan Stores after the sale.

By the time Spartan Stores acquired Food Town, the Maumee-based chain included 47 grocery stores and 26 drugstores, called The Pharm. The company employed 2,487 full-time employees and 2,537 part-time employees, according to the company's annual report to shareholders in late 1999.

Food Town reported a profit of $4.5 million on sales of $597.5 million in 1996. In 1999, the company's last full fiscal year before the takeover by Spartan, Food Town said it had a profit of $7.5 million on sales of $659 million.

For the first nine months of its fiscal 2000 year, prior to the Spartan purchase, Food Town reported a profit of $5.1 million on sales of $520 million.

Even Iott critic and Kaptur supporter Jeff Stephens, who was president of the United Food and Commercial Workers Union local 911 that represented thousands of Seaway Food Town employees who lost their jobs, said the company was healthy under Mr. Iott.

"They had only one bad quarter in all the years that Rich Iott was at the helm," Mr. Stephens said. "They were profitable right to the end. Their stores were being refurbished. It was really a surprise."

Though public filings with U.S. Securities and Exchange Commission documents called the sale a "merger," the same documents say Food Town became a wholly owned subsidiary of Spartan Stores after the acquisition. Spartan began selling public stock after the deal was struck.

While Food Town was operating profitably, the company began to anticipate a challenge from more grocery and retail competitors in the northwest Ohio market, such as Wal-Mart, Kroger, Farmer Jack, and Giant Eagle.

A Spartan Stores filing said Food Town decided in 1999 that it "would need to grow revenues significantly" in order to maintain its earnings growth. Food Town considered creating an expansion or acquisition strategy that would increase the number of Food Town stores, but later decided that path would be too risky.

Instead, the board decided to "consider strategic alternatives, such as the sale of Seaway or a merger with a strategic partner." The company hired an advisory firm which led to the Spartan Stores deal. At the time of the deal in April, 2000, Food Town seemed optimistic that Spartan Stores would be able to successfully run the acquired stores. At the time, Spartan operated 47 grocery stores in Michigan and distributed grocery products to about 400 grocery stores in the Midwest.

According to a Spartan Stores filing, Seaway believed that "Spartan Stores' strong position as a food wholesaler in Michigan and its growing retail presence, combined with Seaway's strong market shares in northwest Ohio and southeastern Michigan, provides an opportunity to create a strong regional business with significant opportunities to continue to expand."

Still, Seaway acknowledged there were risks involved with the deal. The company considered such factors as a weakened Toledo grocery market in years leading up to the merger, the challenges associated with combining the companies, and "anticipated effects of the merger on Seaway's employees and the Toledo community."

Spartan said Mr. Iott held 2.8 percent of Spartan's stock, or 556,237 shares, upon completion of the acquisition. That included 113,772 shares that he held for his children and 36,124 shares owned by his wife.

Mr. Iott received, as did other Seaway shareholders, $5 for each Seaway share plus one share in the new Spartan public stock upon completion of the acquisition. That compensation, at the outset of Spartan's stock, was about equivalent to the last trading price of Seaway's stock.

Though Mr. Iott has said he received $2 million for the sale, public records show that he also received a severance payment of $253,193 from Spartan Stores for the end of his tenure as Seaway's chief executive officer. The severance agreement came from a separation plan for nonunion employees that Food Town adopted in September, 1999.

Meanwhile, Spartan Stores paid Mr. Iott $113,500 for one year to work as a consultant. He also spent three years as one of Spartan's nine board members. According to a 2003 Spartan filing, each director received $20,000 a year in pay, plus $1,000 for attendance at each board-related meeting.

Mr. Iott said his advisory role was limited during his time on the Spartan board.

"I saw things the Spartan management was doing and I spoke up loudly with my objections," Mr. Iott said. "But I only was one person and as you know a board is not responsible for day-to-day operations."

By the time his board term expired in 2003, Mr. Iott still held 2.8 percent of Spartan stock, or 552,680 shares, the highest amount of any board member. Board Chairman James Meyer owned 1.1 percent of the company's stock, while the remaining board members and nominees that year, including new chief executive Craig Sturken, each held less than 1 percent.

As Food Town's former management expected, grocery competitors opened new stores near Food Town stores after Spartan bought the chain. The fight for shoppers' money, along with a weak economy and Spartan's admitted operational shortfalls, contributed to Food Town's demise, Mr. Sturken said in August, 2003.

"After the merger, Spartan executives started making some foolish decisions and not taking advantage of the expertise they had acquired to run chain stores," Mr. Iott said in a news conference two weeks ago. "They made decisions they thought were right. I objected to those. It turned out I was right. But by that time it was too late."

The evidence of Spartan's struggles can be seen in the sharp decline of its stock prices in the three years between its acquisition of Food Town and the chain's closure. The company's shares sold for $11 a share in August, 2000, when it was first sold. Stock prices rose topping out at about $17 in mid-2001, but traded for $3.45 in August, 2003.

Spartan Stores' decision to close Food Town stores left thousands of metro Toledo residents jobless. Besides unemployment benefits, Food Town workers who were represented by UFCW Local 911 received severance benefits. For instance, workers with 10 years on the job got five weeks of pay.

Most union members also received an additional month of health coverage, after which they had to pay for it on their own. Unionized meat cutters, under the terms of a separate contract with the company, got six months of coverage.

A sour taste remains among those who lost their jobs in the store closures and some continue to blame Mr. Iott.

Former rank-and-file employee Fran Oliver, a Food Town meat department worker from 1968 to 2003, said Mr. Iott should have known he was handing over the grocery and drugstore business to an owner that didn't have the same commitment to the stores that Food Town had.

"He knew all this was going to happen. If he didn't, he wasn't very smart," Ms. Oliver said. "Spartan and all of them were nuts for dumping a company like this."

Pat Nowak, who was in charge of public relations for Food Town under Mr. Iott, defended Mr. Iott's oversight of the company before the acquisition.

"Rich was there early in the morning and he was there late at night. He was involved in the company. He did everything a CEO was supposed to do," Ms. Nowak said.

Contact Sheena Harrison at:

sharrison@theblade.com

or 419-724-6103.



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