Israeli supermarket chain Mega seeks protection from creditors

JERUSALEM (Reuters) - Israel's second largest supermarket chain, Mega, is seeking protection from creditors, parent company Alon Blue Square (BSI.TA) (BSI.N) said on Sunday, after failing to obtain an agreement with suppliers postponing a payment due last week.

The decision to request a court-appointed company trustee and a stay of proceedings against it follows months of squabbling with suppliers over payments due by the retailer which has a workforce of about 3,500.

One of the supermarket chain's biggest missteps was keeping high-end prices as Israelis moved to newer discount shopping chains. Its main competitor, Shufersal, has faired better after it began offering wide-ranging discounts.

Mega, which has also complained about high labour costs, already closed 55 branches and has cut its workforce by 2,500. It said it hopes to keep the remaining 125 branches operating until it can find a buyer.

Should Mega fail, or be dramatically reduced in size, it would be blow to competition in Israel's retail sector, which the government for years has been trying to boost to help keep living costs in check for Israelis.

Last week, Alon Blue Square reported it received two offers for its real estate unit, Blue Square Real Estate (BLSR.TA), valuing the subsidiary at up to 1.7 billion shekels ($429 million). The offers sent Alon Blue Square's up more than 30 percent.

Mega has debts totalling 463 million shekels, according to the Globes financial newspaper.

A sale of the real estate unit could enable Alon Blue Square to inject cash into Mega.

(Reporting by Ari Rabinovitch; Editing by Elaine Hardcastle)