Published on: March 6, 2007The Great Atlantic & Pacific Tea Company (A&P) will acquire the 140-unit Pathmark Stores for $677.3 million in cash and stock, creating a 550-store chain operating primarily in New York, New Jersey and Philadelphia, as well as in Baltimore, Washington, D.C., Michigan and Louisiana.
Including debt assumption, the deal is valued at $1.3 billion. A&P has said that it believes that it can realize annual integration synergies of $150 million within two years through cost reductions and efficiencies.
Germany’s Tengelmann Group, the majority owner of A&P, will be the majority shareholder in the new, combined company. Yucaipa Cos., Pathmark’s largest shareholder, will get a stake in the new entity.
According to reports, the deal is expected to close during the second half of the year.
Christian Haub, executive chairman of A&P, will continue in that role at the new company, as will Eric Claus, president and chief executive of A&P.
In a press release issued yesterday, A&P listed the following benefits it expects to come from the transaction:
• “Ability to better serve customers in the New York, New Jersey and Philadelphia metro areas.”
• “Annual integration synergies of approximately $150 million within two years, through cost reductions in overhead, greater efficiencies, increased utilization of support facilities and the adoption of mutual best practices between the two companies.”
• “Retention of the Pathmark banner, format, customer appeal and sales productivity.”
• “Combined information systems integration into A&P's modern technology platform.”
• “Corporate management/administrative consolidation of A&P and Pathmark employees in Montvale, New Jersey.”
• “Platform for investment in existing and new stores to better compete in the Northeast retail food industry.”
• “Benefits to the customer through the breadth of offerings available from the combined companies, and the continuation of community outreach efforts.”
Some analysts say, however, that the Federal Trade Commission (FTC) is likely to raise some objections to the deal because it traditionally has expressed concerns about acquisitions that would result in a high concentration of store sin a single area. There are some expectations that 40 or more stores may have to be sold off to meet FTC concerns.
- KC's View:
- We think that we’re beginning to agree with the MNB user who suggested that there has to be another play here for Yucaipa’s Ron Burkle, who we can’t imagine will be satisfied with just watching A&P and Pathmark just evolve.
We had another MNB user who wondered why we were so negative about the merger of these two companies…and we can only say that we’ve grown tired of getting press releases from A&P explaining how it is reorganizing and coming up with new strategic plans to make the company more relevant and productive. And the results have been generally underwhelming.
We wonder if, when A&P has to start selling off stores, it could open the door for either another NY chain (D⊃Agostino⊃s?) or a non-NY chain to make a move on those locations. Wal-Mart Neighborhood Markets? Hannaford? Price Chopper?
We think if any of those three came into the market and competed head-to-head with A&P, the guys in Montvale wouldn't know what hit them. And, inevitably, we’d be on the receiving end of yet another press release from A&P about a new strategic initiative or reorganization…