A&P in Talks to Buy Pathmark for $652.5 Million

U.S. supermarket chain Great Atlantic and Pacific Tea Company [A&P] has confirmed it is in talks to purchase the Pathmark chain for $652.5 million, or $12.50 per share, in cash and stock. The price represents a 3.7% premium to Pathmark shares' Monday close. The deal follows on the heels of last week's purchase by Whole Foods of rival Wild Oats Markets for $565 million. A&P, founded in 1859, has a market cap of almost $1.4 billion and operates A&P, Waldbaum's and Food Emporium stores in nine states. Long-standing grocery chains like A&P are faced with competition from discount hypermarkets like Wal-Mart as well as higher-end specialty food stores like Whole Foods and Trader Joe's. The combination of A&P and Pathmark will consolidate the brands in the fragmented Northeast and give A&P more exposure in the mid-Atlantic region. The deal is still subject to shareholder and regulatory approval. Pathmark shares closed yesterday at $11.95 while A&P shares gained $2.30, or 7.4%, to $33.17.

Sources: Reuters, MarketWatch, TheStreet.com
Commentary: SAC Capital's 2007 Transactions: This Hedge Fund Has Been Busy • Whole Foods to Consume Wild Oats • Kroger's: Are Traditional Supermarkets' Salad Days Through?
Stocks/ETFs to watch: The Great Atlantic & Pacific Tea Company (GAP), Pathmark Stores, Inc. (PTMK). Competitors: Kroger Co. (KR), Safeway Inc. (SWY). ETFs: Consumer Staples Select Sector SPDR (XLP), Vanguard Consumer Staples ETF (VDC), PowerShares Dynamic Consumer Staples (PSL)

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