A&P, Pathmark confirm talks
Grocery chains would combine for $652.5M
Wednesday, February 28, 2007

BY GREG SAITZ
Newhouse News Service

Whispers and speculation about them have been swirling for at least a year, but just like Angelina Jolie and Brad Pitt, two of the state's largest supermarket chains initially kept quiet about their dalliances.

Not anymore.

A&P yesterday broke its silence on nearly the worst-kept secret in the grocery industry: The company is in talks to acquire rival Pathmark for about $652.5 million dollars in cash and stock.

The supermarket chain based in Montvale, which is formally known as Great Atlantic & Pacific Tea, made its announcement after trading of both companies was halted in the wake of sharp volume and price spikes yesterday morning.

Analysts and industry observers have been saying for months market consolidation of grocers in the metro area is inevitable. Last spring, the most prominent rumors involved A&P and Carteret-based Pathmark, two chains that have had varying degrees of success in recent years.

"It's a good combination of companies because Pathmark's salient strength is its urban stores, but Pathmark has struggled with its suburban stores, especially in New Jersey," said industry consultant Burt Flickinger III, managing director of Strategic Resource Group in New York. "And A&P's Achilles' heel is urban stores."

Pathmark officials declined to comment beyond a news release that said it was in negotiations to be acquired by A&P for $12.50 per Pathmark share in cash and A&P stock. An A&P spokesman did not return a call for comment.

In a conference call last month to discuss A&P's quarterly financial results, Chief Executive Christian Haub said, "We believe consolidation would be good for the market and for the industry."

"We want to be actively participating in that consolidation," he said.

Pathmark operates 141 stores in the metro area, while A&P has 410 stores in nine states.

But in New Jersey, the dominant supermarket chain is ShopRite, which last year held about a 12 percent market share, according to the trade publication Modern Grocer. With a 3.5 percent share, Pathmark was third, behind Wal- Mart, and A&P was fourth, with a 2.9 percent market share.

"It's certainly going to put them (the companies) in a position where they're a more viable competitor," said John Niccollai, president of the United Food and Commercial Workers Local 464A, which represents about 8,000 A&P and 1,200 Pathmark workers in New Jersey and southern New York.

If the companies can agree on a deal, however, it's uncertain whether they can gain regulatory approval. A 1999 deal for Royal Ahold to buy Pathmark for $1.74 billion crumbled after the Federal Trade Commission objected to the chains' overlapping store bases.

Pathmark has been trying to gain its footing, and two years ago got a $150 million infusion from billionaire investor Ron Burkle and his firm, Yucaipa. The chain re cently introduced a line of products from natural foods grocer Wild Oats, another company in which Burkle holds a significant stake.

Last week, competitor Whole Foods said it would buy Wild Oats for $565 million.