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    A&P Prez Calls $1.3 Billion Pathmark Deal 'Marriage Made in Heaven'

    MONTVALE, N.J. -- The Great Atlantic & Pacific Tea Co., Inc. confirmed at a press conference yesterday that it would indeed buy Pathmark Stores for $1.3 billion in cash, stock, and debt assumption or retirement, in a transaction expected to close during the second half of A&P's fiscal 2007 year.

    MONTVALE, N.J. -- The Great Atlantic & Pacific Tea Co., Inc. confirmed at a press conference yesterday that it would indeed buy Pathmark Stores for $1.3 billion in cash, stock, and debt assumption or retirement, in a transaction expected to close during the second half of A&P's fiscal 2007 year.

    A&P president and c.e.o. Eric Claus referred to the combination of the two well-known Northeast retailers as "a marriage...made in heaven."

    The purchase, subject to completion of shareholder and regulatory approvals as well as other customary closing conditions, is expected by officials from both companies to create a 550-store, $11 billion supermarket chain with an imposing presence in New York, New Jersey, and Philadelphia metro areas, along with stores in the Baltimore/Washington D.C., Michigan, and Louisiana markets.

    Claus said that the new business entity would be able to compete more effectively with "formidable competitor" ShopRite and other Mid-Atlantic rivals.

    During the press conference A&P executive chairman Christian Haub stressed management's desire to keep all of the chains' locations open, despite the proximity of some A&P and Pathmark stores to each other and the expectation that the FTC will require some to be sold off.

    "We don't intend to close any stores," said Haub. "We want to combine these businesses because we think they complement each other." He alluded to such complementary aspects as Pathmark's focus on urban, ethnically diverse markets and effective center store merchandising, and A&P's success in suburban areas with its fresh format.

    When reminded of Ahold's attempted purchase of Pathmark in 1999, which was blocked by the FTC because it would have led to the combined company's having too large a share in the Northeast market, Haub remarked, "The world has changed quite dramatically since that [proposed] transaction," pointing to the proliferation of alternative channels on the retail scene now, among them wholesale club stores, big-box retailers, gourmet retailers such as Trader Joe's, and super-naturals like Whole Foods.

    Under the terms of the deal, The Tengelmann Group, A&P's majority shareholder, will remain the largest single shareholder of the merged retailers. Haub will retain the position of executive chairman at the combined company, while Claus will continue as president and c.e.o. A Pathmark spokesman told Progressive Grocer that Pathmark c.e.o. John Standley's future role at the combined company was not yet known.

    The boards of both A&P and Pathmark have unanimously approved the transaction, and both Tengelmann and investment group Yucaipa, which has a stake in Pathmark, have entered into voting agreements to support the transaction.

    The main features of the purchase include the annual integration synergies of about $150 million within two years, through cost reductions in overhead, greater efficiencies, increased utilization of support facilities, and the adoption of mutual best practices between the two companies; the retention of the Pathmark banner, format, customer appeal, and sales productivity; combined information systems integration into A&P's modern technology platform; corporate management/administrative consolidation of A&P and Pathmark employees in Montvale; and investment in existing and new stores to better compete in the Northeast retail food industry.

    Claus said at the press conference that although the two retailers would learn from each other, Pathmark would keep its individual character.

    "It's not our intention to 'A&P-ize' Pathmark," Claus said. In that vein, Haub noted that A&P's and Pathmark's various store formats "have an important role to play in the marketplace."

    On the effect the purchase would have on pricing, Claus observed, "The ability to reduce costs [will allow] us to pass on savings to consumers."

    In the short term, until regulatory approval comes through, A&P and Pathmark will continue to operate as separate businesses, according to Haub, although he anticipated eventually being able to make physical changes.

    "Of course, we intend to spend capital in the stores," said Haub.

    "By bringing these two great brands together, and by drawing on the strength of Pathmark's tradition and strong customer franchise in our Northeast region, we have the opportunity to establish an entity that appeals to a very diverse customer base, offering a breadth of products and services," noted Claus. "We are eager to build on the operating improvements already achieved at both A&P and Pathmark on a standalone basis, by adding Pathmark's excellent facilities, locations, and associates, and by taking full advantage of the financial synergies of the transaction. In the future we will utilize the entire range of Pathmark and A&P formats, by targeting each to specific locations for maximum customer benefit."

    Pathmark c.e.o. Standley offered his opinion that the transaction would result in "a vibrant new company, which will benefit our customers, associates and shareholders." Meanwhile Pathmark will be continuing "full steam ahead" with its existing merchandising and store prototype initiatives, said Standley.

    Both Claus and Standley said that the unions at their respective businesses had reacted positively to the news of the deal.

    A portion of the cash merger consideration will be provided by the sale by A&P of a portion of its shares in Metro, Inc. or, if necessary, A&P capital stock, totaling $190 million of net cash proceeds. A&P will assume about $170 million of Pathmark capital leases.

    A&P operates 410 stores in nine states and the District of Columbia under the A&P, Waldbaum's, The Food Emporium, Super Foodmart, Super Fresh, Farmer Jack, Sav-A-Center and Food Basics banner. Pathmark currently operates 141 supermarkets in the New York, New Jersey, and Philadelphia metropolitan areas.

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