| |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
 While one grocery store merger, though closed, is still the subject of a Federal Trade Commission challenge, another has the agency's blessing and is on track to close in early December.
Great Atlantic & Pacific Tea Co. and Pathmark Stores Inc. received the regulatory green light from the FTC on their $1.3 billion union Nov. 27, contingent upon the sale of six stores in Staten Island and Shirley, N.Y. A&P said Nov. 19 it was planning to divest stores agreed to by FTC staff attorneys, without naming them, and that it planned to close the deal, which creates an $11 billion chain, in early December. The deal was announced in March and enjoyed what seemed to be an easier regulatory path than Whole Foods Market Inc.'s $700 million takeover of Wild Oats Markets Inc., which was announced two weeks earlier. Although the Whole Foods-Wild Oats merger uniting the two biggest organic grocers in the U.S.closed in August, the FTC is still arguing its case. While the U.S. Court of Appeals in Washington denied the agency's request for an injunction to block the deal, the FTC filed papers with the court Oct. 22 in a move to undo the merger, arguing that the case is not moot, as Whole Foods contends, because there is still a way to protect consumers. Should the agency's argument spark the interest of an appeals court judge, it's anyone's guess how long the appeal may take, a source told The Deal's Cecile Kohrs Lindell. LONG TIME COMING While its outspoken CEO drove much of the talk of Whole Foods' Wild Oats takeover, the organic grocers' saga turned another page July 31, when Whole Foods took on the FTC to argue its case. On day one of the two day affair, pricing data seen as key to the FTC's case was ruled inadmissible, and onlookers were greatly anticipating the final outcome. As Lindell points out:
Whole Foods maintained the FTC has requested information beyond its ordinary course of business on top of the millions of documents it already provided. The two had words ahead of court. RAISING THE CURTAIN Front and center to this story is Whole Foods CEO John Mackey, who hasn't been too discreet in his comments both on message boards, though he used a pseudonym, and to his board, as court documents have revealed. Lindell noted that the FTC contends Mackey said he wanted to buy Wild Oats to end competition:
Ahead of the news, The Deal compiled a comparison of the "Two sides of John Mackey." The Whole Foods-Wild Oats deal was announced in February. The antitrust agency said June 4 it would block the proposed merger, just weeks after Whole Foods said it had run into regulatory trouble related to its planned acquisition, alongside its earnings release in May. To gain favor, Whole Foods said it would sell 35 Wild Oats stores to Apollo Management LP in late June, not enough to offset antitrust issues from which the FTC lawsuit stems. Though still in pursuit of a merger, the companies agreed to a temporary restraining order pending the hearing. A decision is expected in August. NEXT IN LINE For 2007, supermarket M&A kicked off strong but it slowed to a simmer as the year wore on. A&P said March 5 it would acquire Pathmark in a deal worth $1.3 billion in cash, stock and assumed debt, days after prospective merger buzz first surfaced and two weeks after Whole Foods and Wild Oats unveiled merger plans. Two deals in three weeks looked likely to set in motion an industrywide shopping spree, as competition continues to mount on the organic end and discount retailers abound, causing headaches for traditional supermarkets. A March 26 Reuters report suggested Wal-Mart Stores Inc.'s British division Asda might be eying Britain's No. 3 supermarket group J Sainsbury plc, and that the retailer "was looking to contact" certain regulators to discuss potential antitrust issues. The company became the subject of auction buzz in February, since Blackstone Group LP, CVC Capital Partners, Kohlberg Kravis Roberts & Co. and TPG said they were considering an offer. The U.K. Takeover Panel gave the group until April 13 to formally bid for the company, or walk away. After losing its bid partners, CVC abandoned a planned $23 billion takeover. Weeks later, London-based Delta Three LLP, which is backed by the Qatar Investment Authority, revealed taking a stake in the U.K.'s J Sainsbury. The firm then said it paid £730 million ($1.4 billion) to buy a further 7.1% in the grocer on June 15. Three Delta then said July 24 it had tapped former Wal-Mart CEO Tony Campbell to front its likely $24.34 billion bid for the target. Delta (Two) then walked from the deal Nov. 4 blaming the credit markets and the inability to win over the target's pension trustees. Carrefour SA, meanwhile, is embroiled in plans to reduce its dependence on the French market's sluggish sales and falling prices and embark on plans to expand in fast-growing, "hard discount" retail. In August, the company said that along with Swiss partner Maus Frères SA, it would sell its hypermarket joint venture to Switzerland's Coop for $390 million and later said it would spin off 60% of its real estate holdings in 2008 into a $27 billion to $33 billion company. The company said July 27 it would sell its Portuguese unit to Sonae SGPS SA for $909 million, after picking up 250 discount Spanish retailers from Germany's Tengelmann Warenhandelsgesellschaft KG July 16. Carrefour in June lost out to Spanish chain Grupo Eroski SA in a deal to acquire 75% of Spain's Caprabo SA from its controlling families and Spanish bank La Caixa SA in a deal estimated to be worth up to €1.3 billion ($1.8 billion). Eroski also beat out Permira, which owns Spain's DinoSol Supermercados. SMOOTH SAILING In early May, Royal Ahold NV sold its distribution business, U.S. Foodservice Inc. The unit drew interest from a wealth of private equity suitors and food service giant Sysco Corp. during its stay on the auction block. The division ultimately went to a Clayton, Dubilier & Rice Inc.-Kohlberg Kravis Roberts & Co. team for $7.1 billion in a deal announced May 2. The deal could lead to a sell-off of Ahold's other U.S. grocery chains. Sources told The Deal in March that CDR and KKR had teamed up on a bid, as did Bain Capital LLC, Blackstone Group LP and Wellspring Capital Management LLC. Madison Dearborn Partners LLC, GTCR Golder Rauner LLC and Thomas H. Lee Partners were also named as interested parties. The sale is part of a broader initiative to sell off assets to raise capital and to focus on its grocery business in the U.S. EXODUS But could the megaretailer instead decide to vacate the U.S. for good? Consider the landscape: In December 2006, Royal Ahold agreed to sell its Polish operations to Carrefour for $500 million, one month after the company announced it would auction its U.S. Foodservice business and amid pressure to unload other U.S. operations. In a move to trim operating costs by $636 million by the end of 2009 and debt by roughly $2.6 billion, Ahold, which operates U.S. grocery chains Stop & Shop and Giant Foods, said it would unload its U.S. wholesale food operations, as well as the Tops stores in New York and Pennsylvania under its possession, other retail operations in Poland and Slovakia, and its minority stake in Portugal's Jerónimo Martins SGPS SA. The news unleashed a flurry of merger speculation in Europe, but also raised questions about the fate of its other U.S. holdings. (The company then said nearly a year later that it had sold U.S. food retailer Tops Markets LLC to Morgan Stanley Private Equity in a $310 million deal.) The restructuring news ignited buzz anew related to a possible tie-up between Amsterdam-based Ahold and Belgium's Delhaize Group, which owns the Food Lion chain in the U.S. Rumors of a prospective merger first surfaced in the fall of 2006. On Nov. 6, 2006, Ahold's CEO Anders Moberg said in a statement: "It is now time for us to focus our efforts on strengthening our retail competitive position, particularly in the United States." But it won't be easy. Earlier in 2006, Cordes said that the company cut a sales forecast for Ahold's U.S. retail operations as competition from Wal-Mart and Kroger grew. Giant, has launched its own organic brand to remain competitive, but like Stop & Shop, it continues to struggle. Further, a union between the Benelux region's two top supermarkets could shift focus back to European operations. And a lucrative sell-off for U.S. Foodservice -- the subject of a 2003 accounting scandal involving more than $1 billion in overstated earnings -- could also reinforce a U.S. exodus as worthy of more than just a passing thought. Ahold's retail units could draw interest from investors such as Ron Burkle, who pumped $680 million into Minneapolis-based Supervalu Inc. through his private equity fund Yucaipa Cos. in August 2006, marking his third supermarket investment in about a year. Yucaipa is also Pathmark's largest shareholder and will take a stake in the new A&P-Pathmark entity. In January 2006, Supervalu was the big winner in the torturously long auction for Albertson's Inc., pairing with financial sponsors and real estate buyers for a $17.4 billion buyout.--Carolyn Murphy
CategoriesComments Deal Video
    Community
 Elsewhere on The Deal.comDealwatchThe Deal MagazineCorporate Dealmaker
The Deal VideoCategories
Blog roll
Archives
| |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
|
|
|
|
I think WFMI itself should go private. The balance sheet could support it, the company generates strong cash flow, and going private would allow WFMI to focus on its long-term goals. In addition, after the OATS deal, a buyer could sell off some of the duplicate OATS real estate to fund the deal.