Yucaipa Throws Pathmark A Life Preserver

CARTERET, N.J. -- Pathmark's white knight has finally arrived, and his name is Ron Burkle.

The Yucaipa Cos., LLC, the private equity firm founded by financier Burkle, has committed to investing $150 million in Pathmark Stores, Inc. Pathmark will use cash infusion to upgrade its existing store base and open additional stores, positioning itself for improved top line growth and profitability.

Los Angeles-based Yucaipa has also signed a 5-year management agreement with Pathmark, to provide consulting services to the chain on corporate strategy, marketing, operations, finance and retail development.

Shares of Pathmark rose $1.44, or 32 percent, on the news, to close at $5.92 on the Nasdaq Stock Market.

"This transaction, which represents the culmination of the board of directors' decision late last year to evaluate strategic alternatives for building shareholder value, represents an exciting opportunity for Pathmark to partner with one of the most successful investors in the supermarket industry, improve our financial flexibility, and increase the level of investment in our stores," said James L. Moody, Pathmark's non-executive chairman. "We believe Yucaipa's financial and managerial contributions to Pathmark have tremendous potential to unlock shareholder value. We look forward to working with Ron to make this a reality."

"We see significant opportunity in the Northeast," said Yucaipa's Burkle. "Pathmark's prime locations, high store volumes, talented associates and loyal customer base make it a key asset in this market and a viable platform for future consolidation. We believe that a de-levered Pathmark, with increased resources to invest in existing and new stores, will have a significant competitive advantage. With our capital and guidance, and the efforts of Pathmark's 26,000 associates, I am confident that Pathmark will realize its full potential."

Eileen Scott, c.e.o. of Pathmark, added, "This transaction represents a powerful strategic combination that brings together Pathmark's strong market position and fine associate team with Yucaipa's capital and industry expertise. Overall, we think this is an extremely compelling transaction for our shareholders, customers, and associates."

Under the terms of the agreement, Yucaipa will purchase 20 million newly-issued shares of Pathmark common stock, 10.06 million Series A warrants, and 15,046,350 Series B warrants. The shares will represent approximately 40 percent of Pathmark's outstanding common stock. The Series A warrants have an exercise price of $8.50 per share and a three-year term. The Series B warrants have an exercise price of $15 per share and a ten-year term, but will not become exercisable until certain conditions are satisfied.

The transaction is expected to close this summer. Upon closing, Pathmark's board of directors will be comprised of six current or new independent directors and five additional directors nominated by Yucaipa. The independent directors will have the right to nominate their successors.

Yucaipa is well-known for its investments in grocery stores, including the chains Jurgensens, Falley's, Alpha Beta, Food4Less, Dominick's, Ralphs Grocery Co., Smith Food and Drug, and Fred Meyer. Most recently the company bought up 9.2 percent of Wild Oats stock.
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