Pathmark-A&P merger doesn't resonate with experts
Pathmark-A&P merger doesn't resonate with experts
A stock dividend payment has financial experts predicting a merger between The Great Atlantic & Pacific Tea Co. Inc. in Montvale, NJ, and Pathmark Stores Inc. in Carteret, NJ. But retail produce industry experts don't see the possible marriage as a good fit.
A spokesman for Pathmark told The Produce News, "There is nothing I can or will say about that. We don't comment on rumors." Efforts to reach a spokesman for A&P were unsuccessful.
But denials aside, the financial community was abuzz with an A&P announcement that it would issue a special dividend of $7.25 per share to its stockholders. That would equal a payout of about $300 million.
An insider who asked not to be identified told The Produce News that such a payout "certainly indicates that there is some other news coming. Typically a chain would use that $300 million to reinvest in the stores through remodeling and updating. There has got to be something else going on."
Stock watchers are saying the paying of the dividend will certainly drive the price of A&P publicly traded stock lower. At this writing, A&P stock was about $35, while Pathmark stock was around the $11 mark. The A&P news did seemingly affect the market, as its stock price dropped 6 percent and Pathmark gained 10 percent. The speculation is that the stock price disparity between the two companies needs to shrink if a merger is to occur.
The well-known supermarket investment firm, Yucaipa Cos., is Pathmark's largest investor with a 40 percent stake. The pundits say that for Yucaipa to agree to the deal, it needs to realize a significant stake in the resulting merged firm. A straight stock swap won't do that when the A&P stock is trading for three times or more of the price of Pathmark stock.
But besides the financial angle, produce industry experts don't see the merger as a win-win situation. The insider, who asked not to be identified because of close ties with one of the two retailers, said, "The two retailers are both losing money. The act of putting them together isn't going to change that. I don't see this as a good situation."
A similar view came from retail consultant Ron Pelger of RonProCon, who worked for A&P for many years and is a regular columnist for The Produce News. "Who can say whether it is going to work or not, but it doesn't appear as if it is going to make any difference unless they are going to change things dramatically."
Like the anonymous source, Mr. Pelger said that both chains are struggling. Putting them together isn't going to change that unless there was some significant savings realized. He said that both chains have already cut labor costs to the bone, "even below the bone, so I don't see any big savings there."
Mr. Pelger said that labor is one of the more significant costs for supermarkets, and this merger, if it happens, won't improve that picture very much. He said that the two firms might also realize some savings by not having to compete against each other, but they still have to compete all other retailers out there.
From this long-time retailer's view, it is the deep-discounters that are cutting into the profits of the traditional supermarket. Combining two supermarkets and continuing to operate them in the conventional way will only produce a larger supermarket chain that is still struggling, said Mr. Pelger.
"Only the niche players like Whole Foods, Wegman's and Wild Oats are doing well," he said.
Mr. Pelger said that the only factor that can make this possible merger successful is increased sales. "Sales is the answer to all your problems," he quipped. "If they just put the two companies together and don't generate any more sales, they are going to have the same problems they currently have."
He also said that the two firms do compete head to head, but they often go after different customers. Pathmark has skewed more toward the lower-end, discount customer, while A&P has made an attempt to attract more upscale customers in the latest image makeover of the retailer, which is almost 150 years old.
The retail environment has not been healthy recently for most firms, and Pathmark and A&P fall into that category. In early April, Pathmark reported fourth-quarter sales at just under $1 billion and a loss of $14.6 million, or 28 cents a share. Although those results weren't great, they were a marked improvement over the previous quarter when sales were about the same but losses totaled $301.6 million because of some one-time charges.
A&P's last report, which was the third quarter, showed losses of $71 million, or $1.74 per share on sales of $1.58 billion.
A spokesman for Pathmark told The Produce News, "There is nothing I can or will say about that. We don't comment on rumors." Efforts to reach a spokesman for A&P were unsuccessful.
But denials aside, the financial community was abuzz with an A&P announcement that it would issue a special dividend of $7.25 per share to its stockholders. That would equal a payout of about $300 million.
An insider who asked not to be identified told The Produce News that such a payout "certainly indicates that there is some other news coming. Typically a chain would use that $300 million to reinvest in the stores through remodeling and updating. There has got to be something else going on."
Stock watchers are saying the paying of the dividend will certainly drive the price of A&P publicly traded stock lower. At this writing, A&P stock was about $35, while Pathmark stock was around the $11 mark. The A&P news did seemingly affect the market, as its stock price dropped 6 percent and Pathmark gained 10 percent. The speculation is that the stock price disparity between the two companies needs to shrink if a merger is to occur.
The well-known supermarket investment firm, Yucaipa Cos., is Pathmark's largest investor with a 40 percent stake. The pundits say that for Yucaipa to agree to the deal, it needs to realize a significant stake in the resulting merged firm. A straight stock swap won't do that when the A&P stock is trading for three times or more of the price of Pathmark stock.
But besides the financial angle, produce industry experts don't see the merger as a win-win situation. The insider, who asked not to be identified because of close ties with one of the two retailers, said, "The two retailers are both losing money. The act of putting them together isn't going to change that. I don't see this as a good situation."
A similar view came from retail consultant Ron Pelger of RonProCon, who worked for A&P for many years and is a regular columnist for The Produce News. "Who can say whether it is going to work or not, but it doesn't appear as if it is going to make any difference unless they are going to change things dramatically."
Like the anonymous source, Mr. Pelger said that both chains are struggling. Putting them together isn't going to change that unless there was some significant savings realized. He said that both chains have already cut labor costs to the bone, "even below the bone, so I don't see any big savings there."
Mr. Pelger said that labor is one of the more significant costs for supermarkets, and this merger, if it happens, won't improve that picture very much. He said that the two firms might also realize some savings by not having to compete against each other, but they still have to compete all other retailers out there.
From this long-time retailer's view, it is the deep-discounters that are cutting into the profits of the traditional supermarket. Combining two supermarkets and continuing to operate them in the conventional way will only produce a larger supermarket chain that is still struggling, said Mr. Pelger.
"Only the niche players like Whole Foods, Wegman's and Wild Oats are doing well," he said.
Mr. Pelger said that the only factor that can make this possible merger successful is increased sales. "Sales is the answer to all your problems," he quipped. "If they just put the two companies together and don't generate any more sales, they are going to have the same problems they currently have."
He also said that the two firms do compete head to head, but they often go after different customers. Pathmark has skewed more toward the lower-end, discount customer, while A&P has made an attempt to attract more upscale customers in the latest image makeover of the retailer, which is almost 150 years old.
The retail environment has not been healthy recently for most firms, and Pathmark and A&P fall into that category. In early April, Pathmark reported fourth-quarter sales at just under $1 billion and a loss of $14.6 million, or 28 cents a share. Although those results weren't great, they were a marked improvement over the previous quarter when sales were about the same but losses totaled $301.6 million because of some one-time charges.
A&P's last report, which was the third quarter, showed losses of $71 million, or $1.74 per share on sales of $1.58 billion.
