The Great Atlantic & Pacific Tea Co. Inc. will enter into a new supply and logistics agreement with its principal wholesale supplier, C&S Wholesale Grocers Inc., pending approval of the U.S. Bankruptcy Court for the Southern District of New York.
Montvale, NJ-based A&P estimates the revised contract will generate a run-rate of more than $50 million in annual savings, which will be realized in cash beginning upon its emergence from Chapter 11 pursuant to a plan of reorganization. The agreement will also help the company generate cash savings in the near-term by significantly and immediately improving supply chain and operational efficiency, as well as provide the company with key service enhancements.
“The approval of this new supply and logistics contract with C&S will mark a key milestone for A&P as we move forward with our restructuring,” says Sam Martin, A&P’s president and CEO.
“The agreement will strengthen our existing relationship with C&S, as we work together to drive service delivery and reliability enhancements and substantial efficiencies across our operations. The anticipated annual savings will significantly reduce A&P’s cost structure upon emergence from Chapter 11, while ensuring consistent product availability in our stores and greater diversity of products for our customers,” says Martin.
As part of the agreement, A&P will partner more closely with C&S to take advantage of its access to competitive rates from key manufacturers and producers, creating greater economies of scale and enhanced supplier relationships that position the Company to further distinguish its product offerings in key categories.
The company anticipates that the bankruptcy court will consider its motion on the new C&S contract at a hearing later this month.
Private Equity Behind Bevy Of Food Deals
Merger and acquisition activity was heightened in the first half of 2011 compared to the previous year, with The Food Institute recording 196 announced and closed deals through June. These numbers represent an approximate 27 percent increase in total M&A over the same period in 2010 and about a 65 percent rise from 2009’s 117 total mergers.
“Investment firms and banks continue to play an influential role in food industry M&A activity, showing interest in devalued assets or in companies well-positioned to thrive in a down economy. A prime example is William Ackman’s five million share investment in Family Dollar Stores Inc., making his Pershing Square Capital Management the retailer’s largest shareholder,” says Brian Todd, president and CEO of the Upper Saddle River, NJ-based trade association.
Private equity firms helped shape numerous deals within the food industry. Investment firms and banks participated in 39 acquisitions in the first half of 2011 vs. 24 the prior year. A notable deal included BJ’s Wholesale Club agreeing to be acquired by affiliates of Leonard Green & Partners, L.P. and funds advised by CVC Capital Partners in an all cash transaction valued at approximately $2.8 billion.
Deals among food processors increased as well, with 45 deals either announced or completed, a rise of about 32.4 percent from 2010 and 50 percent over 2009. Specialty food makers continue to be an attractive target for acquisitions. Meyer Natural Foods acquired organic beef brand Dakota Beef..
Sara Lee Corp. acquired Aidells Sausage Co. for $87 million. Among gourmet and specialty sauce and condiment manufacturers, Beaverton Foods Inc. acquired Pacific Farms, making it the largest processor of wasabi products in North America.
Retailers were also involved in more acquisitions through mid 2011 vs. the prior year; 43 deals this year compared to just 23 in 2010. The Great Atlantic & Pacific Tea Co. sold seven Super Fresh stores in Maryland and one Super Fresh location in Washington to Mrs. Green’s Natural Market. A&P received bids for 12 of the 25 Super Fresh stores put up for sale. The Lowe’s grocery store chain purchased Super S Foods.