A&P to Buy Pathmark for $679 Million

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Includes: GAP, PTMK
by: Judith Levy

The Great Atlantic & Pacific Tea Co., owner of the A&P and Food Emporium supermarket chains, will purchase Pathmark Stores Inc. for $689.7 million ($1.3 billion including debt). Pathmark investors will receive $9 in cash and 0.13 share of Great Atlantic stock for each Pathmark share they hold. This amounts to a 9.6% premium over Pathmark's share price on February 26, the day before the two companies made it public that they were considering a combination. The merger is intended to cut $150 million in annual costs and improve Great Atlantic's competitive position in the Northeast, particularly against Wal-Mart and Costco, which are expanding their grocery businesses in the region, and high-end gourmet food shops like Whole Foods. Pathmark and Great Atlantic are both expected to post losses this year -- the third in a row for Pathmark and the sixth in seven years for Great Atlantic -- but they forecast a profit for the year after the completion of the purchase. The deal is expected to close in the second half of Great Atlantic's fiscal 2007. Shares of Pathmark rose 11% to $12.46 on the news, their highest level since August 2002. Great Atlantic shares gained 5.3% to reach $32.50.

Sources: Bloomberg, Business Week, Reuters
Commentary: It's Merger Monday!A&P in Talks to Buy Pathmark for $652.5 MillionKroger'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. (NYSE:KR), Safeway Inc. (NYSE:SWY), Wal-Mart Stores Inc. (NYSE:WMT), Costco Wholesale Corp. (NASDAQ:COST), Whole Foods Market, Inc. (WFMI). ETFs: Consumer Staples Select Sector SPDR (NYSEARCA:XLP), Vanguard Consumer Staples ETF (NYSEARCA:VDC), PowerShares Dynamic Consumer Staples (NASDAQ:PSL)

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