Yucaipa Deal Gets Nod from Pathmark's Shareholders

CARTERET, N.J. -- Putting an end to speculation that they might vote against it, Pathmark's stockholders at a special meeting here yesterday approved the Yucaipa Cos.' proposal for a $150 million investment in the chain. Of the 21.9 million shares voted, more than 83 percent voted for the proposal. The transaction is expected to close shortly.

"We are pleased with the support shown by our stockholders for the agreement with Yucaipa," said Pathmark c.e.o. Eileen Scott in a statement. "With the new investment and Yucaipa's industry expertise, Pathmark will be in a strong position to pursue opportunities to create meaningful value for stockholders and better serve our customers. We are energized and confident as we move forward to realize the great potential of this partnership."

Ron Burkle, founder and head of Los Angeles-based private equity firm Yucaipa, saw the vote as vindication of the efficacy of his proposal. "The results from today's meeting show that Pathmark shareholders clearly recognize the compelling strategic and economic benefits of this transaction," Burkle said. "Pathmark has tremendous assets on which to build, and we're eager to work with the Pathmark team to help the company capitalize on its strong market position and competitive advantages."

Under the terms of the agreement, which were revealed in March, Yucaipa would buy from Pathmark 20 million newly issued shares of common stock, Series A warrants to buy about 10 million shares of its common stock, and Series B warrants to buy about 15 million shares of its common stock, for a total cost of $150 million in cash. The 20 million shares represent about 40 percent of Pathmark's outstanding common stock, but the warrants to buy the additional stocks will eventually up Yucaipa's stake in the retailer to 60 percent.

Now that the proposal has been approved by shareholders, Yucaipa will get five board seats out of 11, a five-year consulting contract, and the repayment of expenses up to $500,000 a year, as well as the right to offer Pathmark strategic, marketing and retail development advice, Pathmark s.v.p. retail development Harvey Gutman confirmed to Progressive Grocer.

Gutman told PG the money from Yucaipa will be invested into the company initially to pay down debt, then to renovate locations and construct new stores.

Rockville, Md.-based Institutional Shareholder Services had recommended its clients vote against the Yucaipa transaction, claiming that Pathmark's board didn't sufficiently explain to shareholders why it had turned down an apparently higher bid from unnamed suitors for the whole company, only to accept the offer of a partial investment from Yucaipa at a lower price. Two additional offers from the unnamed bidders were revealed in Pathmark regulatory filings this week.

Gutman said that Pathmark, although "disappointed" by ISS' recommendation, welcomed the results of the shareholder vote, which was only to accept or reject the Yucaipa transaction, and not on any of the other proposals. He brushed aside any reports of shareholder disquiet over the Yucaipa deal. "We believe that our proxy materials were full and complete, and we're comfortable with our level of disclosure."

Pathmark currently operates 142 supermarkets, most of them in the New York-New Jersey and Philadelphia metropolitan areas.
-- Bridget Goldschmidt
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