Creeping Takeover at Great Atlantic & Pacific Tea?

| About: The Great (GAP)

The recent trading activity in the stock of grocery retailer Great Atlantic & Pacific Tea Company (GAP) has been curious to say the least. Not surprisingly, after Great Atlantic disappointed Wall Street with its earnings report and guidence on July 18th (see conference call transcript), the stock cratered from the $24 price range to the $15 to $16 range during the last 2 weeks of July.

At this point, huge insider buying began in robust. This insider buying was led by the Tenelmann Group, the large German Conglomerate which effectively controls Great Atlantic with an approximate 50% stake, and whom many market observers believe will buyout the remainder of Great Atlantic at a premium (sooner or later). The extremely heavy insider buying ocurred at prices between $15 to $17.82 from the beginning of August through late August according to SEC filings.

Additionally, on August 15th, a group of funds managed by Mario Gabelli's Gamco Investors, Inc. reported that they had increased their stake to 6.8%. All of this insider buying caught the attention of CNBC's Jim Cramer and Bloomberg, as each made a point to highlight the heavy buying in TV reports. On August 28th, a Banc of America analyst initiated coverage with a Buy rating with the stock trading around $17.

Subsequently, during the next 4 trading days, Great Atlantic stock dropped to an intraday low of $12.58 (on Thursday), and closed on Friday at $12.84. Of course part of the reason for the sell off was due to the general markets' sell off, but Great Atlantic sold off much more severely than the general market. Another reason for Great Atlantic's sell off may be attributed to rumors circulating of several large hedge funds having to liquidate their holdings in the stock (to meet redemptions).

The more intriguing reason for the sell off may be a result of Great Atlantic's very conservative outlook at the Sept. 3rd Goldman Sachs' 15th annual global retailing conference. Great Atlantic's gave a very conservative outlook, commenting on inflation concerns, gave limited guidence, and seemed to indicate that the stock was a "longer term" play for investors. (This obviously was not what the hedge funds wanted to hear.)

But, with all of the insider buying going on, one can not help but wonder if Great Atlantic is purposely trying to hold expectations (and the stock price) down while allowing the Tengelmann Group to continue accumulating shares at a low price.

It will be interesting to see how long the market allows a creeping takeover of Great Atlantic to proceed.

Disclosure: Author holds a long position in GAP