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A&P completes Pathmark purchase for $1.4 billion

BY Antoinette Alexander

MONTVALE, N.J. A&P has completed its acquisition of Pathmark Stores, forming a 450-store chain—including 260 pharmacies—with $9.4 billion in annual sales volume.

The deal, valued at $1.4 billion in cash, stock and assumed or retired debt, calls for Pathmark shareholders to receive $9 in cash and 0.12963 shares of A&P stock for each Pathmark share.

The company stated that it plans to maintain the Pathmark name and will retain substantially all Pathmark store operations personnel and about 175 corporate associates.

The combined company has leading market share in the New York metro area, as well as significantly increased market share in greater Philadelphia and Baltimore.

“Our goal now is to efficiently integrate the businesses based on the comprehensive plan developed over the last eight months under the direction of senior management and outside experts. We look forward to the future of our combined company will full confidence in the long-range success we will achieve and the value and benefits we will create for all of our key stakeholders,” stated Christian Haub, executive chairman of A&P.

In announcing the completion of the merger agreement, the grocer highlighted the following key aspects of the deal:

  • The addition of the Pathmark brand and its high volume, price impact operating format, which complements A&P’s Fresh, Discount and Gourmet operations, provides the most diverse range of targeted food retail formats in the Northeast, according to the company.
  • An expanded portfolio of real estate and store locations across the Northeast’s most densely-populated markets.
  • The retention of 97 percent combined company EBITDA from store operations, based on historical financials proforma for required divestures.
  • An improved financial profile based on $150 million in integration synergies that are anticipated to be achieved within 18 to 24 months.
  • The merger of A&P’s and Pathmark’s respective technology strengths.
  • The retention of key Pathmark management personnel to support integration activities and operate the combined business going forward.

With the deal complete, A&P operates 450 stores in six states and District of Columbia under the trade names A&P, Pathmark, Waldbaum’s, The Food Emporium, Super Foodmart, Super Fresh and Food Basics.

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Meijer Photo allows shoppers to get photo gifts in an hour

BY DSN STAFF

GRAND RAPIDS, Mich. Meijer shoppers now have a chance to develop unique photo gifts, usually within an hour. The Midwest retailer recently launched Meijer Photo, Powered by HP. The touchscreen photo kiosks feature state-of-the-art digital equipment to create a variety of photo products, including posters, calendars and college photo books, which photo department manager Pete Heinz said are becoming very popular.

“Our customers also now have the opportunity to create personalized holiday cards, allowing them the flexibility to create cards with their own images right up until the 11th hour,” Heinz added. We’re seeing customers still coming in to our stores in the middle of December to get holiday cards personalized with their family photos.”

The photo calendars can be started in any month, and the photo greeting cards are available in 4-by-6- , 4-by-8- and 5-by-7-inch sizes. The photo books include a choice of hardcover colors and page themes.

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Fred’s reviews its options after releasing Q3 results

BY Michael Johnsen

MEMPHIS, Tenn. Fred’s may soon be on the sales block, Michael Hayes, the company’s chief executive officer stated Thursday morning in announcing the company’s third-quarter results. According to Hayes, Fred’s has received multiple inquiries from qualified parties and the company has retained Merrill Lynch to review a range of strategic and financial alternatives.

In addition, Fred’s has suspended its stock repurchase program, suggesting that a deal may be imminent.

“The inquiries that came in were from different types of players [meaning both strategic and financial],” Hayes told analysts during a conference call Thursday morning. “What triggered it, as you can understand, is our stock is trading around book value,” Hayes said, even though the company has a strong balance sheet.

Fred’s reported total sales of $419.9 million, a 3 percent increase for the third quarter ending Nov. 3. On a comparable store basis, sales increased 1.1 percent for the quarter versus a 3 percent increase in the year-earlier period.

“As announced earlier this month, we now have completed our refresher program, which involved a substantial revamping of our store look and merchandise across our chain,” Hayes stated. “Obviously, a project of that scale caused some disruption to our store operations; however, we think this initiative will strengthen Fred’s competitive position over the long term by making our stores easier to shop and more appealing to customers. Still, early indications from our holiday sales while strong in the new expansion departments, thus far show that consumers remain conservative in spending.”

Fred’s also reported a slow start to the flu season to date, citing three sources—internal trackings, the FAN report and the FluSTAR report. “All of those are very indicative” of a slower start to the season as compared to last year, commented Rick Chambers, Fred’s executive vice president of pharmacy operations. “We saw our first spike around December of last year with the main spike coming in February, but we’re still anticipating a month or two off before we start seeing any relevant flu activity.”

The company reported a drop in its third-quarter sales mix in both health and beauty aids and pharmacy as compared to the year-ago period. The company’s mix included an 8.2 percent of HBA sales, 8.4 percent last year, and a 33.9 percent pharmacy share, compared to 34 percent in last year’s third quarter.

Fred’s gross profit for the third quarter increased 5 percent to $124.9 million, representing a 40 basis point increase in gross margin to 29.7 percent, primarily reflecting the impact of increasing generic drug penetration in the pharmacy department, Fred’s reported.

Fred’s total annual sales for 2006 were $1.8 billion. According to Drug Store News, it is the 26th largest retail pharmacy operator in America, just ahead of Kinney Drugs and Kerr Drug.

Fred’s, Inc. operates 708 discount general merchandise stores mainly in the southeastern United States, including 24 franchised Fred’s stores.

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