Pathmark Stores and The Yucaipa Companies jointly announced the execution of a definitive agreement under which Yucaipa will invest $150 million in Pathmark.
Pathmark will use the proceeds from the transaction to upgrade its existing store base and open additional stores, positioning the company for improved top line growth and profitability. Yucaipa has also executed a 5-year management agreement with Pathmark to provide consulting services following the closing on corporate strategy, marketing, operations, finance and retail development.
“This transaction, which represents the culmination of the Board of Directors’ decision late last year to evaluate strategic alternatives for building shareholder value, represents an exciting opportunity for Pathmark to partner with one of the most successful investors in the supermarket industry, improve our financial flexibility, and increase the level of investment in our stores,” said James L. Moody, Pathmark’s Non-Executive Chairman. “We believe Yucaipa’s financial and managerial contributions to Pathmark have tremendous potential to unlock shareholder value. We look forward to working with Ron to make this a reality.”
“I am excited about this transaction,” said Ron Burkle of Yucaipa. “We see significant opportunity in the Northeast. Pathmark’s prime locations, high store volumes, talented associates and loyal customer base make it a key asset in this market and a viable platform for future consolidation. We believe that a de-levered Pathmark, with increased resources to invest in existing and new stores, will have a significant competitive advantage. With our capital and guidance, and the efforts of Pathmark’s 26,000 associates, I am confident that Pathmark will realize its full potential.”
Eileen Scott, CEO of Pathmark, said: “This transaction represents a powerful strategic combination that brings together Pathmark’s strong market position and fine associate team with Yucaipa’s capital and industry expertise. Overall, we think this is an extremely compelling transaction for our shareholders, customers, and associates. We are excited about working with Ron and the rest of the team at Yucaipa to take full advantage of the opportunities before us.”
Under the terms of the agreement, Yucaipa will purchase 20,000,000 newly-issued shares of Pathmark common stock, 10,060,000 Series A warrants, and 15,046,350 Series B warrants. The shares will represent approximately 40% of Pathmark’s outstanding common stock. The Series A warrants have an exercise price of $8.50 per share and a three-year term. The Series B warrants have an exercise price of $15.00 per share and a ten-year term, but will not become exercisable until certain conditions are satisfied. Upon closing, Pathmark’s Board of Directors will be comprised of six current or new independent directors and five additional directors nominated by Yucaipa. The independent directors will have the right to nominate their successors.
The transaction, which was unanimously approved by Pathmark’s Board of Directors, is subject to customary closing conditions and approval by Pathmark’s stockholders. The transaction is expected to close this summer. Pathmark was advised by, and received a fairness opinion from, Dresdner Kleinwort Wasserstein Securities LLC.
Murdok | Breaking eBusiness News
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