Pathmark/A&P Merger Unaffected By Wild Oats/Whole Foods Situation

It does not take careful deliberation to conclude that the Wild Oats (OATS)/Whole Foods (WFMI) situation with the DOJ is essentially irrelevant to the Pathmark Stores Inc. (PTMK) - A&P (GAP) merger. Despite numerous sources that have attempted to draw comparisons between the two, there is simply no real similarity other than the fact that the companies involved fall into the general "grocery" category.

In the PTMK-GAP merger, the overlaps are extremely straightforward and can be addressed by standard divestitures which will ensure grocery competition in several local markets. This is true with virtually every major grocery merger transaction where overlaps exist in isolated geographic markets. If this combination involved an extremely high number of overlaps in rural, or even suburban areas, there might be some problems with the volume of divestitures required -- but then the companies would have (presumably) been aware of this before entering into the merger agreement. This lesson surely was learned in the failed PTMK-Ahold merger. And this does not even factor in the presence of WalMart, which clearly played a role in the Albertson's-Supervalu deal last year.

The Wild Oats/Whole Foods presents a unique situation with respect to 'grocery' mergers in that the two are very obviously the only two specialty grocery chains currently in the U.S. market. There are no other competitors offering consumers strictly natural/organic products on the scale of both entities. This is a well-known concept.

A more appropriate analogy would be the failed Staples/Office Depot transaction. The critical issue in both cases is specialty retail operations, as opposed to the broader industry associated with the products involved. In Staples/Office Depot, there were clearly many options for consumers seeking office supplies, but in many markets the merger would have created a single office superstore. Similarly, consumers can now purchase natural/organic products at most traditional grocery stores, but the Wild Oats/Whole Foods merger would leave a single entity specializing in these products. It's a fairly simple equation.

The PTMK-GAP merger does not present this sort of issue -- not by a longshot. The issue here too is a simple equation: ensuring that consumers have grocery options in the specific New York/New Jersey communities where both companies currently operate. Every indication to this point suggests that standard divestitures roughly at the 30-store level will appease the FTC.

There is simply no reason to believe this merger is in danger because of developments in the Wild Oats/Whole Foods transaction.

Disclosure: We have no positions of any kind, in any security. We are a completely neutral source of research and analysis.