Bi-Mart chain seeks to sell to employees.

Byline: Edward Russo The Register-Guard

Hoping to keep Bi-Mart Corp. Northwest owned and operated, the owners of the Eugene-based chain - one of Lane County's biggest and best-known companies - are seeking to sell the business to their workers.

In the next month, about 2,300 employees will get the choice to use part of their 401(k) retirement savings to buy stock in the discount retail chain from the present owners - 135 top executives and managers, and a Portland investment firm, Endeavour Capital.

Major shareholder and Chief Executive Marty Smith said selling Bi-Mart to employees will allow Eugene to remain the headquarters of the 64-store retail chain, preserving local jobs and the other economic benefits of a corporate headquarters of a firm with annual sales of more than $620 million.

Smith, who is nearing retirement, said selling the firm to employees will allow him and other stockholders to make a profit on an investment they made seven years ago purchasing Bi-Mart. Under Smith's leadership, the chain has managed to grow even as competition from Wal-Mart and other big-box discounters has intensified.

Smith said he and the other Bi-Mart shareholders are anxious to avoid selling the firm to an out-of-area retailer or investment firm that might move the headquarters. The vast majority of the 135 current shareholder employees want to continue working for the firm after the employee stock ownership plan, or ESOP, is carried out, he said.

"What better way to ensure that the next generation of Bi-Mart employees and management stays here and continues what we have built for nearly 50 years?" Smith said Thursday.

He declined to disclose many financial details of the deal.

Smith would not say what price the ownership group is asking, or how much profit he and the other senior managers would make. "It will be a substantial amount," Smith, 60, said of his potential payoff.

It was not clear Thursday whether employees favor the ESOP idea. Some contacted at the Thurston store said they were interested and that they believed Bi-Mart would continue to grow.

There are about 12,000 employee-owned firms nationwide. Lane County is home to several. One is Burley Design Cooperative, a Eugene bicycle maker that is owned and run by 85 members who each earn the same wage. Another is Shelton Turnbull-Printers, which is owned by about 100 employees who bought the firm two years ago under an ESOP.

Bi-Mart has hired a Chicago-based bank, LaSalle Bank, to be the ESOP trustee.

An ESOP is a federally regulated procedure under which employees opt to take the employer contribution portion of their 401k retirement plan savings and pool it to create a down payment to buy the firm. Under the Bi-Mart deal, the employees would also have to line up a loan from a lender that they would use to pay for the balance of the company.

In subsequent years, employees could allocate the employer contribution portion of their retirement to pay down the loan and thereby acquire more shares in the firm.

In essence, the ownership stake becomes part of the employees' retirement savings.

Workers will have to carefully analyze if such a proposal makes financial sense, said Vaughn Gordy, senior vice president with LaSalle Bank.

"We don't know if (individual employees) are living hand-to-mouth, or if they just came into a big inheritance," he said. "We don't know how close they are to their retirement, or what their personal wealth and savings are outside of their retirement plan. All these things play a role in the investment decision that they are being asked to make."

Bi-Mart executives will explain the offer to employees at meetings in coming days. By mid February, employees will have decided whether to take part, Smith said. If enough agree, ownership could be transferred to the ESOP by the end of that month, he said.

Smith said that under the ESOP, he would remain CEO for the next few years, and other top executives would also remain in place, eventually giving way to younger management.

The proposed sale is the latest ownership twist for Bi-Mart, a membership discount chain that was started by a group of investors in Yakima, Wash., in 1955.

The firm opened a store in Eugene seven years later, and moved its headquarters to Eugene in 1967. During the next 30 years it was owned by several firms and investment groups, including Pay 'N' Save, Thrifty Corp., Leonard Green & Partners, and Rite Aid Corp.

During the ownership changes, Smith and other executives remained in top jobs. In 1997, Smith and other senior managers, backed by Endeavour Capital, bought Bi-Mart from publicly owned Rite Aid for an undisclosed amount.

Since then, two retail firms and two investment groups made offers to buy Bi-Mart, Smith said, but he and the other shareholders declined to sell, preferring an ESOP instead.

Bi-Mart has many longtime employees, Smith said, who "treat the company like they own it, whether they do or not. Now we have the opportunity to let them share in that situation."

If Bi-Mart's owners had decided to sell to one of the interested retailers, Smith said, it's likely that the Eugene headquarters would have been shut and it's management team dismantled. Bi-Mart employs more than 300 people at its west Eugene headquarters, and more than 500 others in 10 Lane County stores. It's annual Lane County payroll exceeds $24 million.

Thurston Bi-Mart store manager Ron Brown said stock ownership "is a great opportunity for our employees. It's a good thing for any employee to own a piece of the rock, so to speak. We have good employees to begin with, but for people who have a stake in the company, it provides them with a sense of ownership."

Thurston Bi-Mart clerk Penny Cash said she will use some of her retirement savings that she has accumulated at Bi-Mart for the past seven years to buy company stock. "I think we are just going to expand even more," she said. "(Business) is going very good."

CAPTION(S):

Bi-Mart employee Penny Cash talks to a regular customer at the Thurston store on Thursday.