Alaska Commercial Company's Activities Regarding Competition After Acquisition by Community Services Administration Grantee

HRD-81-97: Published: May 14, 1981. Publicly Released: May 22, 1981.

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GAO was requested to develop information regarding allegations that an Alaskan business venture, CEDC Sales Inc., doing business under the name Alaska Commercial Company (ACC), had obtained a significant competitive edge and unfairly challenged privately financed grocery businesses by receiving Federal funding provided through a Community Services Administration (CSA) grantee. The grantee, Community Enterprise Development Corporation of Alaska (CEDC), is a rural development corporation formed and funded by CSA under the Economic Opportunity Act of 1964.

In October 1977, CEDC Sales Inc., a wholly-owned subsidiary of CEDC, acquired 11 retail branch stores of ACC and its electric utility. At the time, the purchase was the largest acquisition made by any CSA-funded community development corporation. The total sales price for the company, which had been conducting business in Alaska for over 200 years, was about $9.0 million. The purchase was financed from $2.5 million in CSA grants made to CEDC and a $6.1 million bank loan. After the stores were acquired, ACC entered a period of cash shortage. CEDC requested that $1.5 million of subordinated convertible debentures be placed by ACC with CEDC to improve the financial position of ACC and allow expansion. Consequently, the inventory increased by about 36 percent, and accounts receivable rose by about 84 percent. Although ACC continued to operate, liabilities increased significantly. Trade payables increased by 142 percent, and the bank line of credit rose 87 percent. Additionally, CSA approved a $1.5 million loan from CEDC to ACC. Due to the lack of documentation concerning these funding actions' impact on competition, GAO had no means by which to review the rationale for the CSA belief that the CEDC purchase of and subsequent loan to ACC were in compliance with legislative requirements. Since the change in ACC ownership, ACC has lowered its overall gross profit margin, increased the number of its stores from 11 to 14, and implemented new techniques to better merchandise its goods and services.

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