As widely expected, A&P (Great Atlantic & Pacific) has made a deal that Pathmark, primarily Yucaipa Cos., could not refuse.
The deal, if approved by shareholders and regulators, would create a 550-store grocery chain with most of its stores in the New York to Philadelphia corridor. A&P also operates stores in Michigan, Louisiana and the Baltimore and D.C. markets.
Pathmark stores will continue to operate under the same banner and format, while administrative and management functions for the combined companies will be consolidated and moved to Great Atlantic's headquarters in Montvale, N.J.
Christian Haub will continue as executive chairman of the new organization. Eric Claus, president and chief executive of Great Atlantic, will also maintain the same position in the combined company.
Mr. Haub told analysts during a conference call, "The combination will create a more competitive and profitable supermarket chain in the Northeast. It will turn two unprofitable companies operating in a highly competitive market into a profitable company" sooner than if they stayed independent.
"This transaction is the latest step in A&P's strategic transformation, which began approximately 18 months ago in 2005 with the successful sale of A&P Canada and its U.S. executive leadership change," said Mr. Haub.
John Heinbockel, an analyst with Goldman Sachs, expressed surprise there was "no stated role for Pathmark's very capable executive team. We had assumed that any deal would represent more of a balance than this," he wrote in a research report.
Mr. Heinbockel also said he expected push back from regulators with 50 or 60 stores having to be divested before approving the deal. This, he wrote, would include many of the profitable locations on Long Island.
Discussion Questions: Christian Haub said the deal will "turn two unprofitable companies operating in a highly competitive market into a profitable company" sooner than if they operated separately. Do you believe this is true? Are you surprised, as is John Heinbockel, that a role was not established for talented management from Pathmark? Do you see continuing operating Pathmark stores under the same banner as a positive or negative?