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THE DEAL'S OFF

ZANDAAM, The Netherlands -- Ahold here last week terminated its agreement to acquire Pathmark Stores in the face of "strong opposition" by the U.S. Federal Trade Commission.Ahold's move drew swift condemnation from Pathmark, which promised to "hold Ahold responsible for the consequences of its actions" (see story at right).Hans Gobes, Ahold spokesman, told SN that the FTC took a different tack in

ZANDAAM, The Netherlands -- Ahold here last week terminated its agreement to acquire Pathmark Stores in the face of "strong opposition" by the U.S. Federal Trade Commission.

Ahold's move drew swift condemnation from Pathmark, which promised to "hold Ahold responsible for the consequences of its actions" (see story at right).

Hans Gobes, Ahold spokesman, told SN that the FTC took a different tack in its negotiations with Ahold that appears to signal a new approach by antitrust authorities towards U.S. supermarket consolidation.

"They have changed their model; that's important for the U.S. supermarket sector to realize," Gobes said.

The FTC would not reveal the details of its stance, but an FTC spokesman told SN last week that the commission did not disallow the merger. "It never came to a commission vote," the spokesman said. "We didn't block the merger. Blocking it would have required an injunction. And then the commission would have needed to vote on it.

"It was up to the parties involved to decide not to move forward with it. And we can't speculate on why they decided not to move forward. The FTC didn't do anything to block this. We were simply talking to them and they made the decision."

Ahold announced its agreement to purchase Pathmark last March. Ahold said it would pay about $1.75 billion for full control of the retailer, with most of that figure representing assumption of debt. In particular, Ahold expressed interest in Pathmark's management, including James Donald, president, chairman and chief executive officer. Ahold said it planned to rebanner its Edwards stores as Pathmark once the deal closed.

The deal also was seen as a further sign of Ahold's dominance on the East Coast of the U.S., where it operates a number of chains.

But the deal ran into delays and opposition from some consumer groups and the National Grocers Association, Reston, Va., which claimed that the transaction would stifle competition and lead to higher food prices. Finally, the FTC's opposition ultimately led Ahold to its pullout decision, Gobes said. The Ahold executive board terminated the agreements with SMG-II, the holding company controlling Pathmark, and ended a tender offer for the preferred stock of Supermarkets General Holdings Corp., the parent of Pathmark.

Ahold planned to operate Pathmark as its sixth U.S. stand-alone operating company. The others are: Stop & Shop, with stores in Connecticut and Massachusetts; Giant-Landover in the Washington and Baltimore metropolitan areas; Giant-Carlisle (which includes the Edwards division) in Pennsylvania; Tops Markets in western New York state; and Bi-Lo in the Carolinas. These units are part of Ahold USA, which is based in Chantilly, Va.

Gobes said that until now the FTC analyzed supermarket acquisitions on a store-by-store basis in order to rule on divestitures. "That's the way it was done in our earlier deals for Stop & Shop and Giant of Landover," he said. "In the Pathmark deal, they didn't want to look at it on a store-by-store basis. We were willing to divest a very large number of stores. But they didn't want the transaction to take place."

Gobes said Ahold believes the FTC made its decision based on Ahold's strength overall in the region. "They feel we are very strong as a company and they don't want us to continue to grow through acquisitions in trade areas where we are already strong.

"We feel very disappointed; we have a lot to offer consumers in that area."

Ahold also said it wasn't able to locate a buyer that might be acceptable to the FTC for the stores it had hoped to divest.

Gobes declined to say how many stores Ahold offered to divest, but he said it was more than the 50 units rumored earlier. Pathmark operates more than 130 stores and Edwards more than 70 units.

Last week's developments led some observers to question Ahold's ability to continue its U.S. acquisitions program. But Gobes said Ahold will continue to grow in the U.S. through acquisitions, but "not in trade areas here we already have a considerable position."

He said Ahold has been targeting three additional U.S. acquisition candidates. "We're lucky because those three are not in areas where we now have a big position," Gobes said. "However, they may be adjacent or close by, so there are synergies possible."

Gobes said the deal's termination means the Edwards banner will remain. He said Ahold plans to continue to grow all its U.S. chains.

Ed Comeau, a financial analyst with Donaldson Lufkin & Jenrette, New York, said he was "a little surprised" by last week's developments. "Even though the economics of the deal were falling apart, I thought Ahold would find a way to get it done," he said. "You never know if the FTC is posturing or legimately opposing it."

Gary Giblen, New York-based managing director, Banc of America Securities, San Francisco, stressed that Pathmark needs a capital infusion. "They almost have to be sold," Giblen said. "Pathmark could be sold to anybody who doesn't overlap directly."

Supermarkets General shares fell 82% to 5 5/8 in over the counter trading last Thursday following the announcement that the deal was off. Ahold's American Depository receipts fell less than one percent to 27 3/16 on the New York Stock Exchange.

Tom Zaucha, president and chief executive officer of the National Grocers Association, Reston, Va., said last week that the termination of the Pathmark-Ahold merger means "the consumer was the real beneficiary." He said store divestitures would not have remedied the problems involved, adding that NGA will continue to voice its opposition to "those prospective mergers and acquisitions that will result in greater concentration and less competition."

Ahold's global reach includes supermarkets and hypermarkets in The Netherlands and other European countries, including Portugal, Spain, the Czech Republic and Poland. Ahold also has operations in other parts of the world, including Latin America and the Asia Pacific region. The company had 1998 sales of about $30 billion. Last week Ahold said fourth quarter U.S. sales were "robust" and that store sales were above expectations.