Analyst: A&P Eyes Pathmark

Discussion
Apr 07, 2006
George Anderson

By George Anderson


CIBC World Markets analyst Perry Caicco believes A&P may be interested in making a bid for Pathmark Stores.


According to The Associated Press, Mr. Caicco wrote in a note to investors that A&P’s payout of a special dividend resulting from the sale of its Canadian operations “paves the way for a share-heavy consolidation move, most likely with Pathmark.”


Karen Short, an analyst with Soleil Securities, agreed. She told the Bergen Record newspaper, “The market perception was that [the dividend] was one of the things that had to happen before a deal could be worked. This opens the door.”


Speculation over a possible deal between the two New Jersey-based supermarket chains comes after Pathmark posted disappointing results in its latest report.


Pathmark’s CEO John Standley said the retailer is making progress in getting turned around. “I am more enthusiastic today than I was six months ago when I got here,” he said in a call with analysts.


Mr. Standley said he expects that the company would have a rough go of it in the first two quarters ahead, “but then we’ll be on our way.”


He added that Pathmark is developing a new store prototype that focuses on perishables. No date was given for a possible rollout.


Yucaipa Cos. owns a 40 percent stake in Pathmark. 


Moderator’s Comment: What do you see as the challenges and opportunities for the company should a merger between A&P and Pathmark take place?
– George Anderson – Moderator

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11 Comments on "Analyst: A&P Eyes Pathmark"


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Eliott Olson
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Eliott Olson
14 years 10 months ago

Gene

You’re the only one old enough to remember choosing between chain dancers. If the fleets in, they should do OK.

Race Cowgill
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Race Cowgill
14 years 10 months ago

I see it the same way. In Pathmark’s hey-day, in the mid 1980’s, they had big stores with very few SKUs, poor condition produce, 20 or 30 checkout lanes with only half of them open and average checkout lines of nine on a Saturday afternoon, and surly customer service personnel. Interestingly, at the same time, A&P started down the path to the same results but with smaller stores. Both of these organizations showed evidence of a heavy financial focus and light customer focus, unusually high risk-aversion in a risk-averse industry, and low awareness of their weaknesses. My recollection is that in the last 20 years, these organizations have been run by well-intentioned people who have immersed themselves in the details of financial activity and structures, not in the core elements of the grocery business.

Our stats show 83% of mergers and acquisitions fail. 83%. It seems unlikely that these two organizations will succeed as one.

Bernie Slome
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Bernie Slome
14 years 10 months ago

Great comments folks! Proves that if you are late to the party there is not much left to say. That might prove true should A&P attempt to acquire Pathmark. Pathmark, in my opinion, is on the road to turning things around. They have become more customer focused; they are starting to create new store formats, thus they seem to be in a better position to return to their former lofty heights. Maybe after they turn things around they should look at acquiring A&P! Or, as Race said 83% of mergers fail, leave these 2 companies to stand alone!

David Livingston
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14 years 10 months ago

A&P has been Midas in reverse for as long as I can remember. They buy strong regional chains and turn them into weak regional chains. The competition is applauding this move as cheers of “Thank God for A&P” ring about the industry. A&P has never improved anything they have purchased. The challenges are endless and the opportunities are limited to real estate. A&P might be a bit over-confident on the merger because it’s in a market they think they already know.

Warren Thayer
Guest
14 years 10 months ago

I’m disappointed that there’s no point in my posting on this one this morning. Ryan said it all, and he said it perfectly correctly.

Ryan Mathews
Guest
14 years 10 months ago
I don’t think there’s any serious doubt that A&P is on the acquisition trail. That said, I think there is serious doubt they are in position to structure a successful acquisition. We have to ask ourselves what’s changed in their corporate culture that would allow the acquisition of a troubled firm to be a positive move. After all, this is the same company that had trouble making a success out of the acquisition of a market leader like Kohl’s in Milwaukee and Farmer Jack in Detroit. If they couldn’t make powerhouses continue on a winning track, how are they supposed to bring any troubled chain back to prosperity? The glib answer is that with the Canadian divestiture they are now better capitalized. But, they obviously had money during their last round of acquisitions. What we need to feel better about a Pathmark acquisition — or any acquisition for that matter — is some sign that A&P has passed through a significant internal change; that decision making has become more streamlined and effective; and that there’s… Read more »
Steve Anderson
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Steve Anderson
14 years 10 months ago

The most important thing to be considered is that A&P and Pathmark are headquartered in the Northeast, the last part of the country where Wal-Mart does not have significant penetration. The unions may put up a fight, but it is inevitable that Wal-Mart will open stores in urban centers, including New York City. Moreover, Wal-Mart may use its 99,000-square-foot stores and Neighborhood Markets to increase penetration in urban areas where real estate is scarce. Meanwhile, Target is becoming more aggressive in the grocery space.

We’re only in the first inning of what is likely to be a dramatic change in the grocery retail landscape, particularly in the New York area. It likely will mean the demise of many older, heavily unionized chains (such as Grand Union in 2001).

Gene Hoffman
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Gene Hoffman
14 years 10 months ago

The first thought that comes to mind is: Why haven’t A&P and Pathmark been able to return to their former lofty leadership positions as successful, growing retailers by their own initiative?

If you merge A&P and Pathmark, then mix in a few new store prototypes among their existing operations, with Yucaipa watching from the sidelines while doing its own opportunistic financial planning, what will you must likely to get? Two chain dancers, both getting a little bit older, but still trying to cut a caper with the younger and more nimble dancers on the marketplace dance floor.

Mark Lilien
Guest
14 years 10 months ago

Mergers are like marriages: many fail and many more aren’t constructive even when the couple stays together. Both A&P and Pathmark are known for weak performance. When 2 weaklings merge, the combined entity is not stronger, it’s twice as weak. The enhanced New York/New Jersey market share and anticipated overhead reductions won’t be enough. Both companies should sell more of their real estate and think about franchising their locations.

Bill Bittner
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Bill Bittner
14 years 10 months ago
I agree with many of the earlier assessments, but will try to take a different perspective on it. What should A&P do at this point? Having driven the wolf from the door by selling off assets and portions of the business, what can they do now to revitalize it? First off, the chairman has announced a three prong plan that really does make sense. His plan for high-end gourmet, fresh, and economy formats should result in distinct channels clearly recognizable by the consumer. The key word in that sentence is “should.” While the plan sounds good, there are some very fundamental steps that must be taken to ensure success. A&P has to ensure the distinction between formats by completely separating the merchandising organizations. They can use the same IT applications and get merchandise through the same suppliers, but they have to keep the assortment, pricing, and promotion decision makers separated. I have seen it happen over and over again as merchandising departments attempt to support multiple formats and end up making compromises that finally result… Read more »
Justin Time
Guest
14 years 10 months ago
All of the previous comments have their own merit, to a certain extent. Last Saturday was one of those rainy days and, at my local Super Fresh, 8 of the 10 registers were open, 4 of which are self checkouts. No human cashiers were standing around. Some commentators tend to kick A&P, especially on inventory control. I make it a point to check reduced items and discontinued item displays. A&P family stores have this best under control. Safeway and Giant are more prone to carry slow moving products. I think the A&P acquisition of Pathmark is a good thing. With the acquisition, A&P will have a store count of about 550. This is where the chain should be and have revenues exceeding $10 billion, the same level of sales they previously had with about 100 more stores. So weeding out the bad performers has helped the bottom line. A&P’s strategy as they approach their 150th anniversary is one of balance, diversity and offense. Closing stores and divisions aren’t the game plan any longer. The “fresh”… Read more »
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