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Haggen Files for Chapter 11 Bankruptcy

After struggling to rapidly expand from 18 stores with 16 pharmacies to 164 stores with 106 pharmacies; from 2,000 to more than 10,000 employees; and from a small, two-state grocer to a major West Coast regional chain, Haggen Food & Pharmacy filed for Chapter 11 bankruptcy.

John Clougher, Haggen's CEO, said the decision  – which many observers described as all but inevitable following a spate of escalating turmoil – "will allow us to continue to serve our customers and communities while providing Haggen with a process to realign our operations to be positioned for the future." Clougher's statement went on to note that the filing is "the best way for Haggen to preserve value for all stakeholders."

Although Haggen did not specify the number of stores it would sell as part of the move, it intends to focus on more profitable locations with the backing of up to $215 million in debtor-in-possession (DIP) financing from its existing lenders to maintain operations and the flow of merchandise to its stores during the sale process.

The 22-page federal court filing listed more than a dozen creditors, the largest of which, Unified Grocers, is owed an estimated $14.8 million, while Albertsons, which is suing Haggen, is also listed as being owed an “undetermined” amount of money related to the litigation.

Dale Henley, the company’s former CEO, is also listed as being owed nearly $5 million in deferred compensation, while its West Coast division president, Bill Shaner, is no longer with the company. Clougher is now leading the company solo going forward.

The bankruptcy comes a month after Haggen announced it was closing more than two dozen stores, and just one week after Haggen filed a $1 billion lawsuit against Albertsons, alleging that the latter organized a "coordinated and systematic [effort] to eliminate competition."

Albertsons filed a lawsuit in July citing breach of contract alleging that Haggen has refused to pay almost $40 million for inventory following the acquisition.

Haggen acquired the stores, including former Vons, Pavilions, Albertsons and Safeway banners, following a Federal Trade Commission ordered sale as part of the merger of Albertsons LLC and Safeway last year. Throughout the expansion process, the Bellingham, Wash.-based grocer has struggled to gain its footing, including its recent announcement to close or sell 27 stores in California, Arizona, Nevada, Oregon and Washington, as part of a "right-sizing strategy," in an effort to "invest in stores that have the potential to thrive under the Haggen banner."

Haggen hired Sagent Advisors to market for sale some of the locations in the five states it operates and to explore market interest for various store locations. Discussions are underway with interested parties to sell many of the company’s remaining assets.

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