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    Dairy Mart Seeks Bankruptcy

    Stores to remain open as the company reorganizes its management and finances.

    Dairy Mart Convenience Stores Inc. and all of its subsidiaries yesterday filed voluntary petitions for Chapter 11 bankruptcy. However, all 546 company-owned and franchised units will remain open as the company integrates a new management team and seeks to regain financial stability.

    Recently-appointed CEO and President Gregory Landry said the federal filing would afford the company time to determine its future role in the convenience store landscape.

    "This company has been through a tumultuous period," Landry said. "Court protection will now allow us to stabilize the situation so that Dairy Mart's new management team can take steps to build value and make this a better company. The convenience store format is one that we absolutely believe has potential for success. However, Dairy Mart must improve store performance and lighten the burden of its present capital structure if we are to succeed."

    In an interview with CSNews, Landry emphasized that the move is not a prelude to the company's dissolution but rather a vehicle to rebound. Toward that end, the company:
    [BULLET] Plans no layoffs or massive store sell-off -- in contrast to earlier plans to jettison 220 units;
    [BULLET] Has retained investment bankers Houlihan, Lokey, Howard & Zukin to explore strategic options;
    [BULLET] Is pursuing a $46 million line of credit known as Debtor-in-Possession to pay for salaries and to enhance operations;
    [BULLET] Is taking steps to bolster relations with its vendors and suppliers. "If we're going to succeed it's very important we establish a partnership with our suppliers and vendors," said Landry. "That is something that's been hurt since the company was put up for sale a year ago."

    On the surface, the bankruptcy filing seems a logical step as Dairy Mart integrates a new management team. On July 30, the company severed an agreement to merge with DM Acquisition Corp., an entity controlled by Robert B. Stein Jr., the company's previous CEO, chairman and president. The merger collapsed after Stein was unable to secure financing and prompted his departure.

    Landry, who joined the company 15 years ago, attributed the bankruptcy filing to three factors: heavy debt load from a history of leveraged acquisitions; changing dynamics in the industry that have depressed key-product profit margins like gasoline and cigarettes; and the termination of the previously announced sale-merger.

    To turn the debt-ridden company (Dairy Mart is in arrears for $48 million,) management will shift its focus to merchandising. "I do suspect a need to revamp merchandising," said Landry. "Our merchandising has not changed for a number of years."

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