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A&P BEGINS SELLING STORES TO OFFSET DEBT

MONTVALE, N.J. -- A&P here said it is selling its Super Foodmart stores in northern New England. The move is seen as either a stopgap measure to avoid possible defaults on debt obligations, or the first step in a series of asset sales.

A&P disclosed agreements earlier this month to sell nine of its 34 stores in Massachusetts, Connecticut and New Hampshire to three separate buyers for a combined total of approximately $80 million, with eight more Massachusetts stores still up for sale. The company said it also plans to shut its New England division office in Springfield, Mass., and consolidate the remaining 17 New England stores -- 16 in Connecticut and one in upstate New York -- into its New Jersey division.

Some retail analysts told SN the $80 million A&P is getting for the nine stores, plus whatever it gets for the remaining eight, may be enough to put off any short-term need to sell off other assets, while other analysts said they believe A&P may continue to pursue additional asset sales to pare the company down to a more manageable group of core stores.

A&P officials said last month the company was considering "a range of options, [and] selling assets would be one of those options."

Of the nine New England stores sold, Stop & Shop, the Quincy, Mass.-based division of Ahold USA, has agreed to buy four (two in Massachusetts, one in Connecticut and one in New Hampshire); Big Y Foods, Springfield, Mass., has agreed to buy four others (three in Massachusetts and one in Connecticut); and an independent operator that A&P did not identify has agreed to buy one location in Massachusetts. The $80 million price seems high, according to some analysts, but the real estate makes the store locations more valuable than the name over the door.

"New England has been an orphan area for A&P -- a market where it's never filled out its store base," Gary Giblen, senior vice president and director of research for C L King Associates, New York, told SN. "But the real estate is very valuable, and although A&P has only a limited presence in New England, it has priceless sites in places like Martha's Vineyard and Nantucket, and that's reflected in the price it's getting for just nine stores."

Without any asset sales, Giblen said A&P was "only a couple of quarters away from falling into a negative financial spiral, so this sale gives it greater operating flexibility for a while."

According to David Rowan, a retail analyst with Dlouhy Merchants, Montreal, the sale of the New England stores at such a hefty price "buys A&P at least a year's time to allow it to straighten things out.

"A couple of weeks ago I would have said the sale of its Canadian stores was imminent, and while the potential sale of Canada will always be a possibility, the odds near-term [for selling A&P Canada] are not as high now as they were prior to the New England transaction."

Mark Husson, an analyst with Merrill Lynch, New York, said the sale of the New England stores "not only gives A&P some breathing space to make use of free cash, but it also allows it to narrow its focus to areas that will be important going forward, and with that in mind, it may feel it's a good idea to jettison some additional excess baggage."

Chuck Cerankosky, an analyst with McDonald Investments, Cleveland, also said A&P is likely to decide to sell additional store groups -- possibly Kohl's Food Stores in Wisconsin or its New Orleans division -- "so it can focus on a contiguous market territory. Given its ongoing problems getting sales and earnings on a consistently upward track, A&P must do more than raise cash to handle debt -- it's also got to right-size the company by figuring out how many stores it should operate and in how many fewer markets, and that's a near-term and long-term goal."

Any contraction of divisions by A&P could potentially include the sale of all or parts of its 239-store Canadian division, observers pointed out. Two of Canada's major distributors -- Sobeys and Metro -- are already on record expressing an interest in making a deal with A&P if it puts any of its Canadian assets up for sale.

According to one Canadian analyst, an acquisition of A&P's Canada stores by Metro would enable the Montreal-based company to expand into Toronto, where it does not operate, and make it a truly national organization, while a sale to Sobeys, Stellarton, Nova Scotia, would enable that company to increase its presence in Ontario and make it a clear No. 2 in the country behind Loblaw.

Canada accounts for 25% of A&P's overall sales but a larger share of its profits, observers pointed out. A sale of the Canadian assets "would allow A&P to focus on its U.S. operations and compete better," one analyst pointed out.

There are also persistent reports that A&P may be close to announcing the sale of some or all of its 37 Kohl's Food Stores in southeastern Wisconsin -- with Albertsons' Jewel-Osco chain and Roundy's named as the most likely potential buyers.

Of the New England stores A&P has reached agreement to sell, Stop & Shop said it will purchase two stores in Martha's Vineyard, Mass., and single units in Killingly, Conn., and Peterborough, N.H. -- all new areas for the chain, Stop & Shop officials pointed out.

Big Y said it is acquiring four stores from A&P but plans to operate only three, noting that a store in Enfield, Conn., "may close indefinitely pending a market analysis and review."

Of the other three stores, all in western Massachusetts, Big Y said stores in Springfield and Westfield will replace smaller Big Y stores in Springfield and West Springfield. The existing Big Y units are 20,000 square feet and 21,000 square feet, while the Super Foodmarts are in the 55,000- to 65,000-square-foot range, which is closer to Big Y's current prototype.

The other store Big Y is acquiring is located in South Hadley, Mass.

Big Y said it expects the deal to close in mid-April. At that point Big Y will operates 48 supermarkets, with a 49th store scheduled to open in the spring in Walpole, Mass.

Once Big Y takes possession of the stores, it said it will close them for five to seven days for remodeling, although the pharmacies and in-store banks will remain open. The stores will reopen under the company's Big Y World Class Markets banner, the company said.