Yucaipa Buys Into A&P

MONTVALE, N.J. — Ron Burkle’s Yucaipa Cos. will increase its ownership stake in A&P to 27.6% as a result of a preferred stock deal. The investment was part of $400 million in new financing for A&P, the struggling retailer announced Thursday.

Yucaipa, which will also gain two additional seats on A&P’s board of directors, will invest $115 million and the Tengelmann Group, A&P’s Germany-based majority owner, will contribute $60 million toward a $175 million convertible stock offering, the company said. Under the new arrangement Tengelmann would remain the largest single shareholder with a 38.6% interest. Separately, A&P announced it would raise an additional $225 million in a debt offering.

A&P said it would use the proceeds from the new financing agreements to repay borrowings and invest in its stores, which have struggled badly amid the economy. The deals were announced at the same time A&P revealed a 3.3% sales decline and a $65.2 million loss in the first quarter, which ended June 20.

Yucaipa as of February had a 4.5% stake in A&P as the result of A&P’s acquisition of Pathmark from Yucaipa in 2007. Pathmark, however, has been at the root of A&P’s struggles, shedding sales and profits while being transitioned to a “price impact” banner in A&P’s multi-format strategy.

Investors approved of the deal, sending A&P stock up by more than 14% Thursday. The addition of Yucaipa also drew praise from Local 1500 of the United Food and Commercial Workers, which lauded Yucaipa’s history with labor unions, including Local 1500’s previous experience with Pathmark under Burkle.

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