PENN TRAFFIC TO BUY 45 ACME UNITS

MARK TOSH

SYRACUSE, N.Y. -- Moving to bolster its presence in northern and central Pennsylvania, Penn Traffic here has agreed to acquire 45 Acme supermarkets from American Stores, Salt Lake City, for about $94 million.

For Penn Traffic, a diversified retailer and distributor, the proposed deal would mark its third strategic acquisition in a contiguous market since January 1993, when it acquired 28 supermarkets from Peter J. Schmitt Co., West Seneca, N.Y. Penn Traffic also acquired 12 stores in northeastern Pennsylvania from Insalaco Markets, Pittston, Pa., last fall.

Acme Markets, a Malvern, Pa.-based division of American, would continue to own and operate about 200 Acme stores in its core greater Philadelphia area (where it is the market leader with an estimated 27% share) and in the Delaware Valley following the sale, American said.

The purchase price includes about $19 million of inventory. No Acme warehouses or other nonstore assets are included in the transaction, the companies said.

A "good number" of the 45 stores to be acquired are expected to carry the Insalaco banner following completion of the deal, Martin A. Fox, vice chairman of finance at Penn Traffic, told SN last week.

"We're still sorting a lot of that out," he said. Some of the stores may carry the P&C, Riverside or Bi-Lo banners.

Fox also declined to say how many of the stores -- including 41 in Pennsylvania and four in New York -- Penn Traffic expected to close. However, he said it would be fewer than one-half of the 45. Current store managers "will continue to run the stores in all the stores that we operate," Fox said.

About 64 of Penn Traffic's 236 supermarkets are in Pennsylvania and 90 are in New York.

The pending deal will not affect Penn Traffic's future acquisition plans, Fox added. "We can neither rule anything in nor out as far as the future is concerned," he said.

Victor L. Lund, president and chief executive officer of American, said in a statement the deal was "in the best interest" of its shareholders. "While these stores are good producers, they fall outside the core market area for Acme Markets," he said.

American, Lund said, can "reinvest the proceeds" of the sale in stores and facilities in Acme's core marketing areas as well as its other operating divisions. American said it is "evaluating more than 20 potential new and remodeled stores for Acme Markets operating division over the next two years."

The proposed Acme sale comes just two months after American agreed to sell Star Market, a 33-store operation based in Cambridge, Mass., to an investment group organized by Investcorp for $285 million cash.

With the acquisition and integration of a majority of the stores, Penn Traffic said it expects to add annual sales volume of about $250 million and 700,000 to 800,000 retail square feet to its existing operations. Penn Traffic -- with operations in four mid-Atlantic states -- reported annual sales of about $3.2 billion in the year ended March 21.

Gary Hirsch, chairman of Penn Traffic, said most of the acquired stores are expected to be renovated or enlarged during the next 24 to 30 months at a cost of about $50 million. The investment is intended to "bring to many of these communities the product variety and enhanced perishable product offerings" that Penn Traffic's Pennsylvania stores are known for, he said.

"We have demonstrated our ability to successfully integrate the former Schmitt stores and the Insalaco stores into Penn Traffic while continuing to expand our cash-flow and operating-income margins," Hirsch said in a statement. "While each opportunity to expand our company presents operational challenges, we expect to be able to add these new revenues while continuing our margin-expansion programs."

Ed Comeau, a securities analyst at Lehman Bros., New York, said the deal was positive for Penn Traffic from the standpoint that it would allow the company to add business in some contiguous markets.

"The company seemed fairly cautious in its outlook for what type of contribution [to earnings] to anticipate from this acquisition," he said. "So I haven't anticipated that it will be contributory to earnings for at least a couple of years. But on balance it fills in the market for them."

The deal, which is subject to regulatory approval, is expected to close in November.