February 28, 2007
A&P Looking to Buy Pathmark
The number reported is $653 million – what the Great Atlantic & Pacific Tea Company Inc. is willing to pay in cash and stock to acquire Pathmark.
A deal has yet to be announced but the acknowledgment of negotiations came as no surprise as Pathmark has been on the block for some time.
“It’s no secret that it would be a significantly value-creating event for A&P if they could acquire and did acquire Pathmark,” said Karen Short, an analyst with Friedman Billings Ramsey & Co.
Ms. Short also called it “very rare that you find a combination where the synergies are as great as they are in this particular scenario.”
The possible sale of Pathmark comes on the heels of an announcement that Whole Foods would purchase Wild Oats. Yucaipa Cos. led by Ron Burkle held a significant stake in Wild Oats as it does in Pathmark.
Discussion Question: What is your reaction to a deal whereby A&P would acquire Pathmark?
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As many have said already…2 weak retailers don’t make a strong market player. A&P has been on the decline for many years, selling off chains and vacating areas and now, just by grabbing onto some more deadwood doesn’t make you float. With the right management in place, this could have created a strong market player with good presence in the area, but the Haub family won’t allow others to run the ship which will limit how well this will go. I don’t care how big of a boat you have, if it has a hole in it, it’s going to go down eventually…can you say “Titanic”?
ShopRite and Ahold are salivating over the prospect!
The acquisition of Pathmark by A&P should add some stability to both companies. The synergies created should improve both operations which, in turn, will benefit their customers. Time will tell, but for now it looks like it would be a good deal for both companies.
I agree with Pete. What do these Wall Street analysts smoke, and may I please have some?
This is an excellent opportunity for Great Atlantic and Pacific to fortify and strengthen its position in the NY/NJ/Philly region.
Incorporating the Pathmark banner into their family of supermarkets will allow A&P to continue rolling out the fresh format that Pathmark did not have available resources to do.
Also, in urban areas such as Brooklyn and the Bronx, it allows A&P to close and replace older Waldbaum’s outlets with nearby Pathmark locations. It definitely is a win-win situation for both companies, their customers and their stockholders.
What do you get when you take two weak companies and put them together? We all know the answer to that one.
In the words of a famous prophet, “Two midgets don’t make a giant.” The Dutch (Ahold) are rejoicing over this German (Tengelmann) maneuver.
Without a location by location analysis there is really no way to know how the combined organizations would work out, but I agree with Frank Dell’s comment that it will require significant changes to succeed. Both organizations have been pretty well beaten up over the last few years. Maybe this change will be one that both teams can embrace as a way to the top. But to accomplish it will take some real strategic thinking. Here are some areas I would suggest….
Clean up the “Banner Confusion.” This is difficult to some extent because of the physical differences in stores; caused by the need to adapt to a constricted urban environment but every effort should be made to align the services, assortments, prices and promotions in clearly segmented upper, middle and economy banners. This goes along with some new software to manage retails so that better gross margins can be achieved while setting a good “retail image.”
Both Pathmark and A&P use an independent wholesaler. To get the efficiencies they need in their supply chain they need to align the wholesaler’s objectives with the total cost of replenishment. Because they have such different delivery and back-room capabilities at each store, along with different assortments and sales area layouts, the wholesaler cannot sacrifice store specific requirements for overall efficiency in the distribution center. For example, an extra step at the distribution center to sort all deliveries into sales area sequence before they are loaded would reduce replenishment costs considerably.
Finally, but probably most importantly, they have to break down the “we vs. they” attitude of the business/union relationship. I know this is a tough one, but I think it is clearer than ever that an organization can only succeed if the people within it are engaged. It means sharing the responsibility and the reward. No more employment contracts for senior management that result in million dollar payouts despite performance, and no more union contracts with clauses whose only effect is to increase the number of hours needed at store level so that costs get out of hand.
Good luck….
I think this is just another scheme to keep A&P in business for a little longer. A&P has ruined just about every company they have ever purchased. Big Star is gone, Kohls is gone, Farmer Jack is just about gone, and they were forced to sell off Canada just to stay in business. The New Orleans division is just a fraction of what it used to be.
I have to agree with the others that this is just another boondoggle A&P is getting themselves into. I think by now A&P has proved one thing and that is they are not very good at operating supermarkets. Don’t count on Pathmark running the show. This is Haub’s little hobby and the Haubs are not going to give up control. This deal should buy A&P a little more time before they are forced to liquidate. Ahold and Wakefern must be thrilled. They know this will not only result in fewer competitors but a weaker Pathmark as well. I feel bad for the Pathmark employees. They must be heartbroken.
The A&P and Pathmark deal benefits one Pathmark investor, whose plan now appears to be to clean up the company to sell it. Pathmark has been under-capitalized for years since the LBO. While they have some good locations, many of the locations have had significant consumer changes. A&P has sold off just about everything–both good and bad operations–and is left with metro New York. Neither company is really making a profit, nor are overhead expenses less than the losses. There is an old saying that combining two weak companies only gives you one large weak company. For this merger to work, there must be a complete re-merchandising and positioning of the combined companies. Further, the culture, vision and strategy must be brought into the current decade.
If the A&P/Pathmark merger takes place, everyone should hope that the Pathmark executives end up running the business. A&P’s acquisition management track record isn’t very good. If A&P management ends up on top, ShopRite should throw a big party because it’s much easier to compete against A&P than Pathmark.
I hope for Warren’s sake he doesn’t get any of what those guys are smoking. Being acquired by A&P is a kiss of death. Of course, in this case, what is there to lose?
Looks like A&P’s life support just got a battery backup. That said, the patient is (and will still be) in critical condition.
I’m also with Peter on this. My friends at Wakefern went to bed happy after hearing this news last night, and not just because a once formidable competitor may become less so. They have been longing for the Pathmark business on Long Island for years and this may be the best opportunity yet.
Still not sure if this is a good deal for either company. Nether company is profitable. A&P is showing a reduction in same store sales. Why would a combination of these companies improve results for shareholders?
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As many have said already…2 weak retailers don’t make a strong market player. A&P has been on the decline for many years, selling off chains and vacating areas and now, just by grabbing onto some more deadwood doesn’t make you float. With the right management in place, this could have created a strong market player with good presence in the area, but the Haub family won’t allow others to run the ship which will limit how well this will go. I don’t care how big of a boat you have, if it has a hole in it, it’s going to go down eventually…can you say “Titanic”?
ShopRite and Ahold are salivating over the prospect!
The acquisition of Pathmark by A&P should add some stability to both companies. The synergies created should improve both operations which, in turn, will benefit their customers. Time will tell, but for now it looks like it would be a good deal for both companies.
I agree with Pete. What do these Wall Street analysts smoke, and may I please have some?
This is an excellent opportunity for Great Atlantic and Pacific to fortify and strengthen its position in the NY/NJ/Philly region.
Incorporating the Pathmark banner into their family of supermarkets will allow A&P to continue rolling out the fresh format that Pathmark did not have available resources to do.
Also, in urban areas such as Brooklyn and the Bronx, it allows A&P to close and replace older Waldbaum’s outlets with nearby Pathmark locations. It definitely is a win-win situation for both companies, their customers and their stockholders.
What do you get when you take two weak companies and put them together? We all know the answer to that one.
In the words of a famous prophet, “Two midgets don’t make a giant.” The Dutch (Ahold) are rejoicing over this German (Tengelmann) maneuver.
Without a location by location analysis there is really no way to know how the combined organizations would work out, but I agree with Frank Dell’s comment that it will require significant changes to succeed. Both organizations have been pretty well beaten up over the last few years. Maybe this change will be one that both teams can embrace as a way to the top. But to accomplish it will take some real strategic thinking. Here are some areas I would suggest….
Clean up the “Banner Confusion.” This is difficult to some extent because of the physical differences in stores; caused by the need to adapt to a constricted urban environment but every effort should be made to align the services, assortments, prices and promotions in clearly segmented upper, middle and economy banners. This goes along with some new software to manage retails so that better gross margins can be achieved while setting a good “retail image.”
Both Pathmark and A&P use an independent wholesaler. To get the efficiencies they need in their supply chain they need to align the wholesaler’s objectives with the total cost of replenishment. Because they have such different delivery and back-room capabilities at each store, along with different assortments and sales area layouts, the wholesaler cannot sacrifice store specific requirements for overall efficiency in the distribution center. For example, an extra step at the distribution center to sort all deliveries into sales area sequence before they are loaded would reduce replenishment costs considerably.
Finally, but probably most importantly, they have to break down the “we vs. they” attitude of the business/union relationship. I know this is a tough one, but I think it is clearer than ever that an organization can only succeed if the people within it are engaged. It means sharing the responsibility and the reward. No more employment contracts for senior management that result in million dollar payouts despite performance, and no more union contracts with clauses whose only effect is to increase the number of hours needed at store level so that costs get out of hand.
Good luck….
I think this is just another scheme to keep A&P in business for a little longer. A&P has ruined just about every company they have ever purchased. Big Star is gone, Kohls is gone, Farmer Jack is just about gone, and they were forced to sell off Canada just to stay in business. The New Orleans division is just a fraction of what it used to be.
I have to agree with the others that this is just another boondoggle A&P is getting themselves into. I think by now A&P has proved one thing and that is they are not very good at operating supermarkets. Don’t count on Pathmark running the show. This is Haub’s little hobby and the Haubs are not going to give up control. This deal should buy A&P a little more time before they are forced to liquidate. Ahold and Wakefern must be thrilled. They know this will not only result in fewer competitors but a weaker Pathmark as well. I feel bad for the Pathmark employees. They must be heartbroken.
The A&P and Pathmark deal benefits one Pathmark investor, whose plan now appears to be to clean up the company to sell it. Pathmark has been under-capitalized for years since the LBO. While they have some good locations, many of the locations have had significant consumer changes. A&P has sold off just about everything–both good and bad operations–and is left with metro New York. Neither company is really making a profit, nor are overhead expenses less than the losses. There is an old saying that combining two weak companies only gives you one large weak company. For this merger to work, there must be a complete re-merchandising and positioning of the combined companies. Further, the culture, vision and strategy must be brought into the current decade.
If the A&P/Pathmark merger takes place, everyone should hope that the Pathmark executives end up running the business. A&P’s acquisition management track record isn’t very good. If A&P management ends up on top, ShopRite should throw a big party because it’s much easier to compete against A&P than Pathmark.
I hope for Warren’s sake he doesn’t get any of what those guys are smoking. Being acquired by A&P is a kiss of death. Of course, in this case, what is there to lose?
Looks like A&P’s life support just got a battery backup. That said, the patient is (and will still be) in critical condition.
I’m also with Peter on this. My friends at Wakefern went to bed happy after hearing this news last night, and not just because a once formidable competitor may become less so. They have been longing for the Pathmark business on Long Island for years and this may be the best opportunity yet.
Still not sure if this is a good deal for either company. Nether company is profitable. A&P is showing a reduction in same store sales. Why would a combination of these companies improve results for shareholders?