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December 4, 2007 (10:40a) - Transaction
Completed
The companies formally completed this
transaction yesterday, December 3, 2007.
Transaction length: 274
days.
November 28, 2007 (9:00a) - FTC Clearance /
Close Details
The FTC has cleared this transaction via a
consent agreeement whereby the companies will divest six retail outlets in the
metropolitan New York area.
The companies intend to formally complete the transacton on
December 3, 2007.
November 19, 2007 (8:25a) - FTC Divestiture
Agreement / Closing Notice Announced
The companies have announced the reaching of a
divestiture agreement with the FTC staff and subsequently filed a formal 14-day
closing notice with the regulator. As a result of the notice, the companies
intend to complete the transaction on or after November 27, 2007,
assuming the divestiture agreement is approved by the FTC Commissioners.
As formal FTC approval is fully expected as a result of the
divestiture agreement, this transaction is now expected to close in early
December as claimed by the companies. The close will very likely be announced
on December 3, 2007, the first business day of next month.
November 9, 2007 (9:50a) - PTMK Shareholder
Approval
PTMK shareholders approved this merger yesterday
(11/7) afternoon.
The companies continue to project a close at some point in
December. This publication believes conditional FTC approval will be granted
within the next several weeks.
November 8, 2007 (1:25p) - GAP Shareholder
Approval
GAP shareholders have approved this
merger.
PTMK shareholder approval is expected shortly.
November 6, 2007 (7:50a) - Close / Financing
Status
The companies issued a press release yesterday
(11/5) disclosing that this transaction is now expected to close before the end
of December 2007. The release contains no information or updates on the pending
HSR review.
The companies also announced that GAP intends to sell its
interest in Metro Inc., valued at approximately $435m to assist in the
financing of this deal.
Obviously, the FTC review is being slowed considerably by
the divestiture process, which was expected to be finalized by now. The most
likely cause of the delay is in the FTC's approving the sale of stores and/or
leases in the congested New York/New Jersey metropolitan areas. It remains
assumed that a buyer or buyers of the divested assets has been chosen and terms
have been reached, but that the FTC has not completed its assessment of the
post-merger market conditions.
While the slippage is somewhat surprising and disappointing,
there remains every expectation that the companies will ultimately receive
conditional FTC clearance and be able to complete the transaction within the
current projected time frame.
October 10, 2007 (4:00p) - Definitive Proxy
Statement Filed
GAP has filed the
definitive proxy
statement for this transaction with the SEC.
There are no changes to the shareholder meeting dates or
regulatory matters section of the document.
October 9, 2007 (4:10p) - Preliminary Proxy
Statement Filed
GAP filed the
fourth amended
S-4 for this transaction with the SEC on September 28, 2007.
Both companies' shareholder meeting have been scheduled for
November 8, 2007. The proxy mailing date is October 11, 2007, so
the final proxy will be out within the next 48 hours.
The proxy contains no material updates to the regulatory
matters section. It will be noted that October 5 was the earliest possible date
for the companies to notify the FTC of intent to close. As of this entry, there
is no formal statement from the companies or informal indication that the FTC
has been notified of intent to close. This will most likely be made during the
final week of this month, assuming the HSR proceeds as anticipated.
October 1, 2007 (8:25a) - Preliminary Proxy
Statement Filed
GAP filed the
third amended
S-4 for this transaction with the SEC on September 28, 2007.
The PTMK shareholder meeting record date is October 8
2007. The PTMK shareholder meeting date has not been established at the
time of this update.
The regulatory matters section of the document contains the
following revisions.
"On September 20, 2007, A&P and
Pathmark entered into an agreement with the Federal Trade Commission pursuant
to which A&P agreed to provide the Federal Trade Commission notice of its
intention to consummate A&P’s acquisition of Pathmark at least two
weeks prior to closing such transaction. A&P and Pathmark further agreed to
give such notice to the Federal Trade Commission no sooner than October 5,
2007.
"A&P and Pathmark have also voluntarily supplied
information to the attorneys general of New York, New Jersey and Pennsylvania
to assist them in their understanding of the potential competitive effects of
the merger."
As discussed previously, the FTC review is expected to be
resolved fairly quickly, given the information available. It would not be at
all surprising if a consent decree were issued within the next two
weeks.
The attorneys general matter is not expected to be anything
more than a formality here, as virtually every competitive aspect of this
combination has been very clear since day one and should be fully resolved via
the divestiture agreement with the FTC.
The current close expectation is the second or third week of
November 2007.
September 21, 2007 (8:25a) - HSR Timing
Extension Announced
The companies have announced a second timing
extension agreement with the FTC which calls for a two-week closing
notification no sooner than October 5, 2007. This translates to an
earliest possible closing date of October 19, 2007.
The companies state the following in the extension agreement
press release:
"(B)ased upon the progress in its
discussions with the Federal Trade Commission, A&P and Pathmark Stores Inc.
have entered into an agreement with the FTC."
The key word, of course, being "progress" which
implies (of course) that discussion with the FTC remain positive and are
nearing a conclusion. While there is certainly no guarantee that this latest
timing extension will be the last, or that FTC approval will be ultimately
granted, the companies are clearly displaying confidence that the HSR situation
will be successfully resolved without much further delay.
It is assumed by this publication that the FTC and the
companies are working on the final details a divestiture agreement, where the
companies have presumably reached an agreement to sell a certain amount of
outlets to a third-party. The FTC is more than likely finalizing its assessment
of the third party and determining if any additional competition problems will
be generated as a result of the divestitures. Again, the geographic areas
involved in this transaction are somewhat complex, so the FTC delay is not very
surprising.
Also, the companies have still not filed a definitive proxy
statement or announced shareholder meeting dates. Barring a development with
the proxies within the next few days, the shareholder meetings and close will
very likely be pushed into early/mid-November 2007.
September 4, 2007 (1:15p) - Preliminary Proxy
Statement Filed
GAP has file the
second amended
proxy statement for this transaction with the SEC on August 31,
2007.
Shareholder meeting details are still not provided in
the proxy statement.
The revised proxy provides the following revision to the
regulatory matters section:
"On August 7, 2007, A&P and Pathmark
entered into an extension of the timing agreement with the Federal Trade
Commission pursuant to which A&P and Pathmark agreed, subject to certain
conditions, that they will not consummate A&P’s acquisition of
Pathmark before 11:59 p.m. on September 25, 2007. A&P and Pathmark will
cooperate in this and any other agency reviews and work to resolve any
objections to the merger asserted on antitrust grounds. There can be no
assurance, however, that a challenge to the merger on antitrust grounds will
not be made or, if such a challenge is made, that it would not be successful.
" A&P and Pathmark have also voluntarily supplied
information to the attorneys general of New York, New Jersey and Pennsylvania
to assist them in their understanding of the potential competitive effects of
the merger."
This publication continues to expect conditional approval
from the FTC within the current timing agreement period. However, the
companies' delay in obtaining SEC consent will now push the close into
early/mid-October 2007.
August 14, 2007 (8:40a) - HSR Status
The companies announced on August 7 an agreement
with the FTC in which the transaction will not be completed prior to
September 25, 2007.
This development obviously pushes back the close beyond this
month, as the companies still need to submit the definitive proxy statement and
schedule the PTMK shareholder meeting. Presumably, the proxy will be filed
within the next few days in order to facilitate a third-quarter close if the
FTC approval is obtained in the current announced time frame.
With respect to the "Timing Agreement" with the
FTC, this is in no way considered a negative development for the deal. In fact,
an August/September close has been expected from the outset of this
transaction, as brief delays are extremely common in retail grocery situations
involving divestitures, such as this one. The delay is perceived as an
indication that the FTC is currently assessing the divestiture proposal and
factoring in the market changes that will occur once this deal and the
divestiture sale are completed. It certainly does not help the timing of the
HSR review that many federal employees take vacations at this time of year. It
would not be at all surprising to find out the the short delay is a result of
staffing shortages as much as the FTC review itself.
In short, conditional FTC clearance remains fully expected
within the next six weeks and the companies should have little difficulty
completing the transaction before the end of September -- assuming the final
proxy is filed within the next two week.
July 24, 2007 (9:40a) - Preliminary Proxy
Statement Filed
GAP has file the
first amended
proxy statement for this transaction with the SEC.
Shareholder meeting details are still not provided in
the current proxy statement.
Regarding the HSR review, the proxy simply notes that
compliance was certified on July 13:
"On July 13, 2007, A&P and Pathmark
each certified substantial compliance with the Federal Trade Commission in
response to the Second Requests. A&P and Pathmark will cooperate in this
and any other agency reviews and work to resolve any objections to the merger
asserted on antitrust grounds. There can be no assurance, however, that a
challenge to the merger on antitrust grounds will not be made or, if such a
challenge is made, that it would not be successful."
As discussed previously, the HSR process is fully expected
to proceed smoothly with the compliance, and will very likely result in a
formal consent decree by mid-August. Presumably, the companies are currently
placing more resources on the proxy statement, which should translate into SEC
clearance within the next week or two. Naturally, the final proxy will need to
come up within the next few days in order to schedule the shareholder meetings
before the end of August. In other words, it is very likely that the deal's
close will occur in early/mid-September, given the two remaining regulatory
processes.
July 16, 2007 (5:55p) - HSR Compliance
Announced
The companies have announced that they certified
compliance to the HSR second request on July 13, 2007. Based on the compliance
date, the second request waiting period expiration date is August 13,
2007, as the 30-day period would otherwise end on a weekend.
The certification will in all likelihood result in a consent
decree and conditional FTC clearance on or before August 13, as the overlap
issues in this case have been relatively straightforward from the outset of the
transaction. Furthermore, the companies presumably have taken the necessary
steps to appease FTC in this case, in terms of divestitures, so the current HSR
waiting period should be essentially a formality.
While a possibility does exist that the FTC will not accept
the concessions as part of compliance, thereby forcing the companies to drop
the second waiting period, this outcome is extremely unlikely given the
perceive progress of the HSR review. Again, dealing with the overlaps in this
case should not be at all difficult and, as suggested initially, the companies
should have FTC consent in hand well before the end of the third quarter of
this year.
June 12, 2007 (8:55a) - Status Report
It does not take careful deliberation to
conclude that the Wild Oats/Whole Foods situation with the DOJ is essentially
irrelevant to this merger. Despite numerous sources that have attempted to draw
comparisons between the two, there is simply no real similarity other than the
fact that the companies involved fall into the general "grocery"
category.
In the PTMK-GAP merger, the overlaps are extremely
straightforward and can be addressed by standard divestitures which will ensure
grocery competition in several local markets. This is true with virtually every
major grocery merger transaction where overlaps exist in isolated geographic
markets. If this combination involved an extremely high number of overlaps in
rural, or even suburban areas, there might be some problems with the volume of
divestitures required -- but then the companies would have (presumably) been
aware of this before entering into the merger agreement. This lesson surely was
learned in the failed PTMK-Ahold merger. And this does not even factor in the
presence of WalMart, which clearly played a role in the ABS-SVU last year.
These concepts are well-known at this point and are simply
being stated again now for clarity.
The Wild Oats/Whole Foods presents a unique situation with
respect to 'grocery' mergers in that the two are very obviously the only two
specialty grocery chains currently in the U.S. market. There are no
other competitors offering consumers strictly natural/organic products on the
scale of both entities. This is also a well-known concept.
A more appropriate analogy would be the failed
Staples/Office Depot transaction. The critical issue in both
cases is specialty retail operations, as opposed to the broader industry
associated with the products involved. In Staples/OD, there were clearly many
options for consumers seeking office supplies, but in many markets the merger
would have created a single office superstore. Similarly, consumers can now
purchase natural/organic products at most traditional grocery stores, but the
Wild Oats/Whole Foods merger would leave a single entity specializing in these
products. It's a fairly simple equation.
The PTMK-GAP merger does not present this sort of issue --
not by a longshot. The issue here too is a simple equation: ensuring that
consumers have grocery options in the specific New York/New Jersey communities
where both companies currently operate. Every indication to this point suggests
that standard divestitures roughly at the 30-store level will appease the FTC.
There is simply no reason to believe this merger is in
danger because of developments in the Wild Oats/Whole Foods transaction.
May 24, 2007 (9:20a) - Preliminary Proxy
Statement Filed
GAP has file the
initial proxy
statement for this transaction with the SEC.
Shareholder meeting details are not provided in the current
proxy statement.
The proxy also provides no material updates to the HSR
second review process, which is the only competition-related regulatory hurdle
associated with this transaction.
As discussed in previous reports, it is anticipated that the
companies will obtain FTC consent for this deal without much difficulty, and
should receive approval -- conditioned on a consent decree with divestitures --
towards the end of this summer.
May 22, 2007 (8:15a) - HSR Status
The companies announced yesterday (5/21) that
they have entered a "timing agreement" with the FTC for its review of
this transaction.
The agreement calls for companies to follow the following
procedures in the second request process:
(1) [they will not] certify that they have
substantially complied with the Second Requests prior to June 30, 2007,
or (2) [they will not] consummate A&P's acquisition of Pathmark for at
least 60 days following the date that A&P and Pathmark substantially comply
with the Second Requests.
This can only be viewed as a positive development in the HSR
review and is a clear indication that significant progress has been made
towards identifying specific outlets for divestitures and/or identifying, and
perhaps negotiating, with a third party/parties for the purchase of the
divested stores.
As noted a month ago, it was believed that the companies had
already made progress with the FTC. Yesterday's announcement seems to confirm
this projection and suggests that the HSR review will indeed be completed
before the end of this summer as anticipated.
April 18, 2007 (4:45p) - HSR Second
Request
The FTC has issued a second request under HSR
for this transaction.
As discussed on April 16, the second request process, which
will include moderate divestitures, is currently projected to last about four
months. It is presumed that the companies have already identified many of the
relevant areas of overlaps and have at least a general concession package
generated for presentation to the FTC.
The overall assessment of this transaction remains very
positive, with no indication issues will surface to threaten the deal in the
near future.
April 16, 2007 (9:15a) - HSR Status
The initial HSR waiting period for this deal
expires at midnight tonight. A second request is a virtual certainty, as is a
certain number or required divestitures in the New York / New Jersey DMA. The
question remains, as is often the case in major grocery mergers, of just how
many stores the FTC will ask the companies to sell off in order to consent to
the combination.
All the information gathered to this point suggests a
divestiture in the range of 15 to 25 stores, with a very good chance the
companies will offer several of their aging outlets in order to both appease
the FTC and to shed a few unwanted properties. In the context of the
transaction overall, this would be a very positive development for the
companies, the communities involved, and any potential buyer wishing to enter
or strengthen its position in the overlapping areas. The FTC should have little
difficulty accepting the companies' divestiture proposal, assuming the key
areas of overlap are addressed.
The only negative aspect going forward in this deal is the
relatively long gap between the grocery consolidation of the late-90s /
early-2000s to this point in time. The current FTC has not dealt with this sort
of transaction much, up to and including the current Wild Oats/Whole Foods
second request process. Although sorting through individual/local grocery
markets is not a terribly complex process, the FTC could have some difficulty
in accomplishing this with the efficiency seen a decade ago.
Nevertheless, this continues to be viewed as a fairly easy
combination for the FTC and the companies to sort through and therefore the
second request process should not be terribly lengthy or arduous. Barring any
unforeseen complications, a consent decree can be anticipated in roughly a
mid/late-August time frame.
March 6, 2007 (9:50a) - Additional Research /
Analysis
Continuing research into this deal has found
this very useful 2005 report, which focuses entirely on the
New York / New Jersey grocery market.
Two themes permeate this report regarding PTMK and GAP: the
companies struggled to retain market share during the first half of this decade
and both companies' stores outdated in comparison to newer grocery formats. The
following summaries provide a very concise description of the companies'
operations in the NY/NJ area, as well as providing insight into the rationale
for the merger. Again, this report was generated in 2005, based on data from
2004:
"A&P, operator of 215 units under the
A&P, Food Emporium, and Waldbaum’s banners throughout the New York
DMA, has seen both its store count and market share dwindle in recent years.
Three years ago the Company held almost a 16% market share and operated 234
stores. Today its share has declined to 13%. Supercenters and discount
stores have been eating into the sales of A&P’s aging outlets.
A&P is launching an online grocery buying service at some of its banners,
most notably Food Emporium, which has lost sales to e-tailers FreshDirect and
Peapod."
"Pathmark operates 142 supermarkets in highly populated
markets in New York, New Jersey, Pennsylvania and Delaware. The Company was
once considered an industry powerhouse although more recently it has found
itself struggling in the ultra-competitive Northeast market. Its stores are
within a 100 mile radius of the Company's headquarters in Carteret, New Jersey.
While the Company’s stores are among the highest volume and most
productive stores in the US (it is estimated the they generate average sales of
approximately $540,000 per week, which compares favorably with the industry
average of $350,000-$400,000 per week), Pathmark has struggled to grow its top
line in the face of declining sales, intense competition and a tired store
base. Among its store base, 112 units are located within the New York DMA.
While Pathmark has kept its store base stable over the past three years, its
market share has declined significantly from 13.6% to 12.2%.
"Extensive competition may force the Company to reduce
prices of its products or increase its promotional costs thereby affecting its
margins."
In its conclusion of this geographic market, the report
states the following:
"The New York/New Jersey market is unique
in that it possesses complexities unknown to most regions in the country. These
complexities include ethnic and economic diversity, high rent and entry costs,
and logistics such as difficult distribution over bridges to the five boroughs
of New York and heavy traffic. Until recently, most national chains have been
hesitant to move into the area, as high costs and lack of familiarity with the
metropolitan area have discouraged them. There is little sign of major chains
such as Kroger, Albertson’s or Safeway. These players realize the
challenges and high cost of failure presented by the New York/New Jersey market
and have chosen to focus on other parts of the country for now. However, this
situation can change in the blink of an eye. Independents and regional chain
supermarkets that have known the area for years and understand the changing
dynamics of the highly diverse market, can efficiently direct their marketing
and product assortments to a population they are familiar with. 'Times they are
a changing' and national supermarket chains and supercenters are now moving in
on an economy that has been predominantly comprised of cooperatives, privately
held independents and regional chains."
Obviously, the information above (and throughout the report)
describes an extremely competitive, albeit narrow, grocery market in the New
York / New Jersey metro areas. On the whole, this is perceived as a very
positive sign for the deal, as the companies can point to very real and
relevant data to show that this combination will ensure not only continued
competition, but the survival of the established branded chains of both
entities. Despite the barriers to entry for this "unique" market,
this deal may very well allow a new player into the NY/NJ area if indeed a
handful of divestitures are required, and this would also be perceived as a
very positive development. It can be assumed that Kroger, among others, will
closely watch the developments in this deal over the coming months.
As far as data goes, the report does confirm yesterday's
assumption that the market shares of the major players changed only marginally
since the late 1990's. The chart below illustrates that both PTMK and GAP,
despite the declines mentioned above, continued to be among the top four
players in the New York metro area, with a combine market share of more then
25%.
Within specific local markets, the 2004 data tells a very
similar story. In the three areas illustrated below, the companies have a
combined market share of roughly between 25 and 36% -- virtually identical to
the market shares for the same areas in 1999 highlighted yesterday.
As information continues to mount for this deal, it becomes
more apparent that the companies will have little difficulty obtaining HSR
clearance in comparison to other major grocery deals of the past. The only
difficulty will be on the FTC's side, where market assessment may be somewhat
difficult and time consuming, but the companies can certainly help expedite
this process by provided solid market data and offering to sell off a few
stores ahead of the final FTC decision. Given the aging stores owned by both
companies, it would seem almost as a benefit to use this deal to shed some
unwanted outlets to a third party -- most likely something the companies had in
mind in reaching the merger agreement.
In sum, it would be terribly surprising if this deal
exceeded six months in length given the information available. If the companies
are willing and able to provide the FTC with a legitimate market assessment
and offer pre-emptive divestitures, the transaction could conceivably
close in a June/July time frame, as opposed to the August/September time frame
suggested yesterday.
March 5, 2007 (1:25p) - Initial Analysis
Unlike last year's ABS-SVU
deal, this transaction does present some significant overlaps and very likely
significant competition issues in a few geographic locations. Specifically,
areas such as Newark, NJ and several New York counties will be impacted by this
merger. The level of impact will be the key factor in the FTC review and
ultimately the timing of the transaction.
It appears at this stage in the research that the overlaps
are not extremely problematic. In other words, there does not seem to
any single market where the companies completely dominate grocery competition,
as at least two or more other grocery outlets are present. This deal offer
differs greatly from ABS-SVU in that WalMart is not a competitor in many of
PTMK's markets, which are much more urban-based than Albertson's. Thus, the
competitors that do exist in the overlapping areas (counties) are either
standard grocery format, or of the convenience store variety. Again, this is
not terribly problematic, but it does add to the FTC's burden in investigating
the relevant geographic markets.
Much of the data obtained to this point suggests fairly high
market shares in places like Newark, New Jersey, where the combined entity will
command approximately 40% of the market. The chart below shows recent (2003)
for Newark:
Note that this data does indeed included smaller retailers,
such as Stop & Shop, which have been excluded from the FTC's grocery market
analysis in many past cases. Thus, if Newarks grocery market is viewed strictly
from the full-sized grocery market standard, the combined market shares will be
much higher.
In several other New York / New Jersey counties (NY metro),
the combined market shares also tend to exceed the 30% level -- again, with the
inclusion of small/convenience retailers. The four counties below represent
overlaps where the market share data (c. 1999) shows potential for competition
issues (note that Waldbaums is a GAP outlet):
This market data was used during the attempted PTMK-Ahold
merger which ultimately failed due to anticipated antitrust concerns. It must
be assumed that recent market data does not vary tremendously from this older
data, as there has been very little consolidation in the NY/NJ grocery industry
since the beginning of this decade. However, research will continue into this
aspect over the next few weeks.
Regardless, there are very clearly overlaps in local markets
and almost certainly enough to warrant a close look into the competitive aspect
of this combination by the FTC. Grocery mergers have historically (see timeline
charts below) been subject to intense regulatory scrutiny any time overlaps
exist, as is the case hear, and lacking the Walmart factor (at least to the
level seen in ABS-SVU), a second request from the FTC can be anticipated.
Furthermore, major grocery deals very often draw the
interest of consumer and/or antitrust groups, such as the AAI, which played a
major role (see
this
AAI release) in breaking up the PTMK-Ahold deal. The good news for this
deal is that A&P will be more favorably received, by consumers and, more
importantly, the FTC than was Ahold in 1999, despite the fact that GAP is
controlled by non-U.S. interests. It will be the relatively low local market
share levels, combined with perhaps a handful of divestitures, that will allow
this deal to be successfully completed.
Based on the preliminary research and perception of the
markets involved, the current closing projection is roughly six months, or in
an August/September 2007 time frame.
For the record, the current national positions for PTMK and
GAP are provided in the chart below. (Links are inactive).
March 5, 2007 (10:40a)- Timelines - Recent
Grocery Transactions
| Transaction |
Length
(Days) |
$ |
HSR |
SEC |
MISC |
| Albertson's Inc. (ABS) - SUPERVALU Inc.
(SVU) |
130 |
17b |
30 |
46 |
|
| Hannaford (HRD) - Food Lion (DZA) |
349 |
3.6b |
321 |
139 |
|
Carr Gottstein (CGF) - Safeway
(SWY)
8/6/98 - 4/16/99 |
254 |
330m |
239 |
217 |
Alaska
court approval: 252
consent decree: 188
injunction: 63
189 |
American Stores (ASC) -
Albertson's (ABS)
8/3/98 - 6/23/99
|
315 |
11.7b |
285 |
35 |
|
Fred Meyer (FMY) - Kroger
(KR)
10/19/98 - 5/27-99
|
221 |
13b |
205 |
166
(3 amend's) |
|
| Averages |
253.8 |
|
216 |
|
|
|
