C&S LINES UP BUYERS FOR GRAND UNION STORES

DAVID GHITELMAN

BRATTLEBORO, Vt. -- C&S Wholesale Grocers here said last week it has lined up five supermarket companies to purchase 84 of the 185 locations the wholesaler stands to acquire from Grand Union Co., Wayne, N.J.

The moves need approval from, among others, U.S. Bankruptcy Court, Newark, N.J., and the Federal Trade Commission.

In other Grand Union-related developments:

C&S late last week successfully faced a challenge in Bankruptcy Court from A&P, Montvale, N.J., alleging the wholesaler had conspired with several major supermarket companies to keep prices at last month's auction, where C&S was the high-bidder for Grand Union's assets, artificially low.

Grand Union said last week Gary Philbin, president and chief executive officer, had resigned. Jeffrey Freimark, currently Grand Union chief financial officer, treasurer and chief administrative officer, will succeed Philbin while continuing in his present positions.

C&S said it has negotiated agreements with Ahold, Zandaam, Netherlands, which would acquire 38 stores and seven building sites for its Stop & Shop division as well as 18 stores for its Tops division; Shaw's, East Bridgewater, Mass., which would acquire 18 stores (as previously reported); PriceChopper, Schenectady, N.Y., which would acquire eight stores; Pathmark Stores, Carterert, N.J., which would acquire six; and Hannaford Bros. (a division of Delhaize America), Scarborough, Maine, which would also acquire six.

In October, Grand Union, had filed for Chapter 11 bankruptcy protection for the third time in five years, and the company decided to liquidate rather than restructure its assets. At an auction last month, C&S was, at $301.8 million, the high-bidder.

As previously reported, industry observers had expected C&S, which currently does not have any retail operations, would attempt to sell off many of the units it was acquiring from Grand Union.

Gary Giblen, director of research, C L King Associates, New York, told SN last week he did not believe it was C&S' intent in buying the Grand Union locations to become a retailer, but the wholesaler would probably end up operating some of the stores.

Debra Levin, an analyst at Morgan Stanley Dean Witter, New York, told SN, "There has been a trend in the wholesale industry for wholesalers to become retailers to protect sales volume and generate sales and earnings."

Industry observers told SN they did not think the FTC would oppose any of the proposed acquisitions, even though only last year the regulator was credited with blocking Ahold's acquisition of Pathmark. The FTC feared the Ahold-Pathmark deal would create an uncompetitive market in the New York metropolitan area, observers noted.

Hans Gobes, Ahold spokesman, told SN he thought the FTC would not block the company's efforts at acquisition this time around. "These stores are in different locations," he said.

"Smaller groups of stores are easier to get through the FTC than larger groups," an analyst, who requested anonymity, told SN.

Giblen also said the limited size of the purchases would probably keep them off the regulators' radar screen. "These are pretty innocuous transactions," he said.

Levin noted the Grand Union deal involves "fewer stores in a geographically wider area" than the abandoned Ahold-Pathmark transaction.

Levin also observed that the companies acquiring stores from C&S should also be prepared to make substantial upgrades at these units. "I expect we will see significant remodeling at all the Grand Union stores that remain operational," she said. "Grand Union was a company that was capital-constrained for a significant period of time."

Pathmark, which itself emerged from Chapter 11 protection earlier this year, was also a company that was seriously capital-constrained for a significant period. That it is now an acquirer, not an acquiree, shows how much the company's fortunes have improved, Giblen noted. "Pathmark is now a big boy," he said.

Giblen observed that the parceling out of the Grand Union stores promises to usher in a kinder, more gentle era in the New York supermarket business. "There is a perception that the New York/New Jersey market is a competitive blood bath," he said. "This is all coming to an end. Grand Union is played out. A&P and Albertson's [Acme division] have stopped their aggressive new store programs. As a result, the metropolitan area is in the process of becoming a benign, rational market."

He spoke to SN the day before U.S. Bankruptcy Court Judge Novalyn Winfield upheld the C&S case. Giblen also said he doubted that A&P's filing would block the acquisition of Grand Union by C&S.

A&P charged that several major supermarkets had "conspired with C&S and agreed not to bid," a tactic that resulted "in chilling the bidding for [Grand Union's] supermarkets," according to court papers.

Giblen was also skeptical of a New Jersey newspaper's report that Grand Union CEO Philbin had been pushed "out the door" by the company.

"There was just no purpose any more for his position," Giblen said. His successor, CFO Freimark, was still "needed on the financial side," he added.