A&P owner buying Pathmark Stores for about $679 million in cash and stock

(AP) The Great Atlantic & Pacific Tea Co., operator of A&P and other supermarket chains, said Monday it will acquire Pathmark Stores Inc. for about $679 million in cash and stock in a deal between largely Northeastern grocers.

The deal would create a 550-store supermarket chain, with annual sales of $11 billion, operating in the New York, New Jersey and Philadelphia metropolitan areas as well as in Michigan, Louisiana and the Baltimore-Washington, D.C., region.

Pathmark shareholders will receive $9 in cash and 0.12963 shares of Great Atlantic stock for each Pathmark share.

That would amount to about $13 a share for each Pathmark share, or a 15.5 percent premium over Pathmark's closing price on Friday. Pathmark had about 52.2 million shares outstanding as of its latest regulatory filing.

Great Atlantic & Pacific will also assume debt that would boost the overall value of the transaction to about $1.3 billion, the companies said.

Pathmark shares rose $1.14, or 10.1 percent, to $12.39 in morning trading on the Nasdaq Stock Market. Great Atlantic shares rose 96 cents, or 3.1 percent, to $31.82 on the New York Stock Exchange.

After the deal closes, 86 percent of the company will be held by Great Atlantic shareholders and 14 percent will be held by former Pathmark shareholders. The company will have about 49 million shares outstanding.

The Tengelmann Group, Great Atlantic's majority shareholder, will remain the largest shareholder.

Christian Haub, executive chairman of Great Atlantic, will continue in that post at the combined company; Eric Claus, president and chief executive of Great Atlantic, will also maintain the same position in the combined company.

"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," Claus said in a statement.

The companies said they expect annual savings of about $150 million within two years, through greater efficiencies, reduced overhead and other changes.

Pathmark stores will retain their name and format under the deal, but administrative and management functions will be consolidated at Great Atlantic's headquarters in Montvale, N.J. Pathmark is based in Carteret, also in northern New Jersey.

The deal is expected to close in the second half of Great Atlantic's fiscal year, after customary approvals from state and federal regulators are obtained. The boards of both companies have already unanimously approved the deal.

Bank of America and Lehman Brothers have committed to provide financing.

A&P said it will raise some cash for the deal by selling shares in Metro Inc. or, if needed, A&P capital stock, totaling $190 million of net cash proceeds. A&P will assume about $170 million of Pathmark capital leases.

Great Atlantic has nearly 43,000 employees and 410 stores in the District of Columbia and nine states: Connecticut, New York, New Jersey, Pennsylvania, Delaware, Maryland, Louisiana, Mississippi and Michigan. Its stores include A&P, founded in 1859, as well as Waldbaum's, The Food Emporium, Super Fresh, Farmer Jack, Sav-A-Center and Food Basics.

Pathmark, founded in 1968, has more than 27,000 employees and operates 141 supermarkets in Delaware, New Jersey, New York and Pennsylvania, all within 100 miles of its northern New Jersey headquarters. It has posted losses in its last seven quarters.

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