WSJ: A&P Mulls Selling Food Emporium Chain

Date: 02-Sep-2010

by Anjali Cordeiro and Paul Ziobro

Great Atlantic & Pacific Tea Co., operator of the struggling A&P supermarket chain, is considering selling its Food Emporium stores as part of a boarder effort to rid itself of some assets and boost its liquidity, according to people familiar with the matter.

The supermarket operator has publicly said it will consider the sale of "non-core assets" as it looks to improve its liquidity after absorbing some big losses in recent months. Food Emporium is the company's gourmet supermarket banner and one of the more attractive chains it owns.

Great Atlantic couldn't immediately be reached for comment. The company operates a little more than 400 stores under several brands including A&P, Waldbaum's, Pathmark, Food Emporium and Food Basics. It recently announced it would close 25 under-performing or non-core locations.

In recent weeks, investment bank Peter J. Solomon has made an effort to gauge potential buyer interest in the Food Emporium chain for A&P, according to one private equity investor, although it wasn't immediately clear which other banks may be involved.

Analysts estimate Food Emporium could fetch more than $200 million in a sale.

Some private equity firms that could be possible bidders are Angelo, Gordon & Co., which owns Kings Super Markets Inc., and Sterling Investment Partners, owners of the Fairway Market grocery chain, industry analysts say.

Representatives of Angelo, Gordon and Sterling Investment had no comment.

Great Atlantic's efforts to sell assets come as the firm has faced mounting losses. For its fiscal first quarter ended June 19, A&P reported a loss of $122.6 million, or $4.83 a share. In July, the company named its second chief executive in fewer than six months as the company posted the quarterly loss on weakening sales and profit margins. Sam Martin was named president and chief executive in July, replacing Ron Marshall, who had joined A&P in January.

Investor concerns have driven Great Atlantic's shares down sharply this year. The stock is down about 74% for the year, trading recently at $3.03. Food Emporium's footprint includes 16 stores in Manhattan, many with long-standing rents that are well-below the current going rates, giving it a lower cost base, said Burt P. Flickinger III, managing director of the retail consultancy Strategic Resource Group. Manhattan has a high cost of entry for selling Food Emporium Chain competitors, leaving Food Emporium isolated from some of the competition pressuring suburban grocery stores. It's a well-known brand in New York and occupies some valuable real estate space.

"Food Emporium's been one of the crown-jewel properties in food retailing for decades, but has been under-managed by A&P," Mr. Flickinger said. "It's the company's most readily saleable asset."

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