INDUSTRY PONDERS PATHMARK'S FUTURE DIRECTION

CARTERET, N.J. -- Last week's surprise unraveling of the Ahold deal has led to intense speculation about the future of Pathmark here, which had been counting on Ahold's funding.Industry observers pointed to a number of other supermarket companies that may place bids now that Netherlands-based Ahold is out of the picture, but they also said Pathmark, Carteret, N.J., may have to go it alone as a leveraged

CARTERET, N.J. -- Last week's surprise unraveling of the Ahold deal has led to intense speculation about the future of Pathmark here, which had been counting on Ahold's funding.

Industry observers pointed to a number of other supermarket companies that may place bids now that Netherlands-based Ahold is out of the picture, but they also said Pathmark, Carteret, N.J., may have to go it alone as a leveraged company.

Observers also shed light on the reasons for the deal's breakup.

It was reported last week that Pathmark has already had inquiries from buyers both domestic and foreign.

An industry source told SN, "If some player, foreign or domestic, wants a presence in the New York-Philadelphia corridor, there's probably no better candidate than Pathmark."

One analyst, who requested anonymity, said Pathmark remains "a very viable acquisition candidate."

He said the "upper echelon" of supermarket companies -- Kroger, Cincinnati; Albertson's, Boise, Idaho; Safeway, Pleasanton, Calif.; Delhaize America, Salisbury, N.C., and J. Sainsbury's, London -- would be the most likely potential acquirers.

He added that Safeway and Delhaize, both of which had bid against Ahold when Pathmark had first been placed on the auction block, were the most likely candidates.

A Safeway spokesman told SN the company does not comment on rumors.

A Sainsbury's spokeswoman declined to comment on reports in the British press about its interest in Pathmark, but repeated Sainsbury's strategy of further expanding in the U.S. from its current base of Shaw's Supermarkets, East Bridgewater, Mass. "We do want to grow market share there. We currently have sales of $4 billion and want to increase that to $10 billion over the next three years or so and that will be both organic growth and through acquisition," she said.

The other potential acquirers could not be reached for comment.

Other observers were not that sure anybody would be particularly eager to make a major acquisition at this moment, when virtually all the large domestic and foreign supermarket companies active in the U.S. are still working their way through the process of integrating their recent purchases or, in the case of Delhaize, preparing to begin the process.

"We're not in a great environment for doing acquisitions," said Jonathan Ziegler, a San Francisco-based equity analyst with Deutsche Banc Alex Brown, New York, told SN.

"Pathmark has good marketshare in a good market, but a lot of after-purchase investment would be required," he added. "Nobody is in a real urgent rush to step up to the plate."

As for why the negotiations among Ahold, Pathmark and the FTC broke down, industry sources offered SN two possible scenarios last week.

In scenario one, Ahold, Pathmark and the FTC had reached agreement on the number of stores Ahold would have to divest, most of them Long Island, N.Y., supermarkets operating under Ahold's Edwards banner.

Most, but not all, of these units would be purchased by British retailer J. Sainsbury's, according to this scenario. The remaining units would be divided among A&P, Montvale, N.J., and several independent operators.

This arrangement, however, reportedly did not please the FTC, which wanted all the divested stores to go a single operator, on the theory that dispersing the stores to several independent operators, who would not be able to withstand the marketing onslaught of the newly expanded Ahold, would fail to improve the competitive situation. This single-buyer demand, according to an industry source, was the deal-wrecker.

Scenario two offers a very different version of events. In this version, according to industry sources, the Pathmark-Ahold deal fell apart "because Ahold changed its mind. Otherwise, the deal would have happened because there was interest from potential buyers of the stores [that the FTC was expected to require Ahold to divest] and support from the states' attorney generals involved. And the talks with the FTC were still ongoing."

One source said there was an apparent split between the Ahold USA people, "who were anxious to do the deal," and executives at the Dutch parent company, who were apprehensive about the price Ahold might have to accept for the Edwards stores they would have to divest.

The source said Pathmark was willing to accommodate Ahold's needs, either by reducing the agreed-on selling price or to bear some or all of the price differential.

Another industry source told SN last week, "Ahold is developing a negative reputation globally for going into deals and then losing interest. It happened in Indonesia and China, and now with Pathmark."

Ahold, for its part, is staying with its original version, that the deal died because of FTC intransigence. Hans Gobes, a company spokesman, asked about the single-buyer scenario, said it was "complete nonsense."

Gobes added, "The FTC opposed the transaction. Whatever number of stores we were willing to divest, they still wanted to block the deal.

"It was a very complicated transaction with the regulators very involved. In the end, there was no deal. We could not cut a deal."

As previously reported, the FTC has told SN it did not disallow the merger, which never came before the commission for a vote.