A&P Canada's Fate Fuels Speculation

MONTVALE, N.J.-- Reports and rumors continue to swirl around the disposition of A&P's Canadian operation. So far, however, no official word has come from the grocer's mouth.

One report, which appeared in Toronto's Globe and Mail newspaper yesterday, cited an anonymous source claiming that A&P's board of directors is weighing whether it should sell off its successful 237-store Canadian division, which includes the Dominion and Food Basics banners, in a bid to bolster profits. The account, however, quoted another unnamed source "close to A&P" as saying the retailer was not currently in talks to sell off its Canadian stores. The news service Reuters also quoted a source to that effect.

The paper reported that A&P's decision to sell could come as early as this week at a shareholders' meeting, although A&P Canada said that no such meeting was scheduled. The division could sell for as much as CAN$1 billion, according to the article.

The Globe and Mail account the said most the likely purchasers are Canadian supermarket chains Metro, Inc., which has stores mainly in Quebec; and Stellarton, N.S.-based Sobeys, Inc., which ranks second in the country after Loblaw.

When contacted by Progressive Grocer, A&P officials declined comment on the reports. A Metro spokesman characterized the Globe and Mail report as "rumors," although he added that if such an opportunity were to arise, his company would "take a look." A Sobeys spokesperson was not immediately available for comment.

Retail analyst Perry Caicco, of Toronto-based CIBC World Markets, has said in a report issued last month, that because of its "solid strategic position in the Canadian grocery market," Metro would be in a "strong and unique position" to acquire A&P's Canadian assets. "For Metro, we can think of no more lucrative scenario than an acquisition of A&P Canada," added Caicco, although he observed that A&P's majority owner Tengelmann, which is based in Germany, would be reluctant to exit the Canadian market, in which it has done well.

One important reason that Metro would be the best fit for A&P is that Metro "has significant purchasing synergies with A&P Canada and knows the operation well through their joint participation in buying group UGI," said Caicco. However, he conceded that competition from Sobey's to purchase A&P would be "vigorous." The analyst said that if Metro were to acquire A&P, Metro would become the No. 3 chain in Canada, after Loblaw and Sobeys.

A&P is currently in the process of a comprehensive restructuring prompted by its debt load and disappointing financial performance. The company's stock closed yesterday at $11.85, up 6.56 percent.
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