A&P in Talks to Buy Pathmark

MONTVALE, N.J. -- In a development not only expected by many, but publicly hinted at by top executives from at least one of the parties involved, The Great Atlantic & Pacific Tea Company, Inc. here said yesterday that it was in the midst of negotiations to acquire Carteret, N.J.-based Pathmark Stores, Inc. for a possible price of $12.50 per Pathmark share or about $653 million (based on the number of Pathmark shares outstanding), to be paid in cash and A&P stock.

A Pathmark spokesman confirmed to Progressive Grocer that the talks with A&P were underway, but would not add any other information. A&P officials were not immediately available for further comment.

"No final agreement has been reached and there can be no assurance that any such agreement will be reached," A&P cautioned in its statement yesterday. "If a final agreement is reached, it will be subject to a number of uncertainties and conditions. Among such conditions would be shareholder and regulatory approvals, including federal and state antitrust clearances."

Pathmark has long been considered one of A&P's main competitors in the highly fragmented Northeast market, but has of late suffered financial setbacks in its struggles against larger rivals and the ubiquitous Wal-Mart.

Christian Haub, chairman of A&P, has repeatedly expressed his company's interest in market consolidation, with speculation focusing on Pathmark as a prime candidate, because of the perceived synergies between the two companies.

Burt Flickinger III, managing director of New York-based Strategic Resource group, described the potential acquisition as "a perfect complementary combination," noting Pathmark's solid success in urban markets, as opposed to its overall weaker performance in the suburbs, and A&P's emphasis on rolling out fresh formats in suburban areas, thereby shifting share from Pathmark and others. The effect of the acquisition would be to take "two good operations between urban and suburban, and make them even better," Flickinger said.

Flickinger also noted that both grocers have outsourced warehousing and transportation to Keene, N.H.-based C&S Wholesale Grocers, and that both Pathmark and A&P suffer from "particularly high" levels of out-of-stocks that don't seem to be an issue at other area food retailers.

An acquisition might allow the companies to work more effectively on the out-of-stocks problem, Flickinger said, by their being able to invest in better computer systems, consolidate distribution systems, align trucking schedules, and draw on sufficient working capital and inventory.

One major obstacle to the acquisition could be strong antitrust challenges from the Federal Trade Commission, which Flickinger pointed out had rejected Ahold's proposed acquisition of Pathmark in 1999. (Ahold has a much smaller market share in the market than A&P.) To that end, the companies' choice of the right antitrust law firm would be "uniquely important" to a successful outcome, he said.

Flickinger also reasoned that the acquisition's ultimate success would depend on who would be installed at the top of a new combined organization. The retention of such key executives as A&P president and c.e.o. Eric Claus "to captain and champion the cause," as well as Pathmark president and c.e.o. John Standley and co-president Ken Martindale, who've both done "a terrific job helping Pathmark make progress" after a decade of struggle, would be key, he said.

Flickinger felt it was most likely that Pathmark would become a banner of A&P.

Share prices of both publicly held chains surged briefly today, before trading was halted on both.

A&P operates 410 stores in nine states and the District of Columbia under the A&P, Waldbaum's, The Food Emporium, Super Foodmart, Super Fresh, Farmer Jack, Sav-A-Center, and Food Basics banners. Pathmark currently has 141 supermarkets, primarily in the New York-New Jersey and Philadelphia metropolitan areas.
--Bridget Goldschmidt
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