A&P in talks to buy Pathmark for about $653 million
PHILADELPHIA (Reuters) - Great Atlantic & Pacific Tea Company Inc. (GAP.N) said on Tuesday it was in talks to acquire rival supermarket chain Pathmark Stores Inc. PTMK.O for about $653 million in cash and stock.
A&P said no final agreement has been reached. A deal would mark the latest merger in the quickly consolidating grocery-store industry. Last week Whole Foods Market Inc. (WFMI.O) said it would buy Wild Oats Markets Inc. OATS.O for $565 million.
Traditional grocery chains have grappled with increased competition from larger rivals, the growth of discounters like Wal-Mart Stores Inc. (WMT.N) and higher-end gourmet and organic markets like Whole Foods.
"It's no secret that it would be a significantly value-creating event for A&P if they could acquire and did acquire Pathmark," Friedman, Billings, Ramsey & Co. analyst Karen Short said before the companies confirmed the merger talks.
A&P said it was in talks to buy Pathmark for $12.50 per share, though there were no assurances a deal would be reached. As of November 24, Pathmark had about 52.2 million shares outstanding. At $12.50 per share, the company would be valued at about $652.5 million.
Pathmark has been rumored as a possible target or merger candidate for years. In 2005, Yucaipa Cos., the private equity firm owned by billionaire grocery magnate Ronald Burkle, took a stake in Pathmark.
Both Pathmark and A&P have been revamping store formats and merchandise at several locations to improve sales.
In November, A&P-owned New York grocery chain Food Emporium announced it would sell high-end imported foods in its Manhattan stores. It also has been targeting budget-conscious shoppers with low prices at its Food Basics chain.
Meanwhile, last year Pathmark signed a deal to sell products from Wild Oats in its stores in an effort to satisfy demand for healthier fare. Yucaipa also has a stake in Wild Oats.
After it confirmed the merger-talks, shares of A&P surged $2.30, or 7.5 percent, to close at $33.17. Shares of Pathmark remained halted for news pending. The stock had jumped 20 cents, or 1.7 percent, to $12.25 before being halted.
Bullish options volume and option volatility in both A&P and Pathmark were on the rise prior to their stock halts, said Paul Foster, options strategist at Web site theflyonthewall.com in Chicago.
(Additional reporting by Doris Frankel in Chicago and Justin Grant in New York)
