PATHMARK TAKES FIRST FORMAL STEPS TO BUY BIG V

ELLIOT ZWIEBACH

CARTERET, N.J. -- Pathmark Stores here said last week it has signed a confidentiality agreement with Big V Supermarkets and begun due diligence in pursuit of acquiring the 38-store chain.

However, it's still too early to determine the ultimate outcome, Jim Donald, chairman, president and chief executive officer, said during a conference call with industry analysts to discuss Pathmark's financial results for the second quarter ended Aug. 4.

"We are actively investigating a potential purchase of Big V," Donald said, "with a purchase price to be determined later. However, I assure you we will be prudent buyers."

Because Big V is in the midst of Chapter 11 bankruptcy proceedings, the process is likely to move forward slowly, Donald said.

Added Frank Vitrano, Pathmark's chief financial officer, "This will be a relatively public transaction because it will be played out in the courts. We're in the process of due diligence, but the process is not in our control. The court will determine the situation."

Donald also said he and other members of Pathmark's executive management team have set up meetings with 25 major vendors beginning in October "to tell them about the new Pathmark and how important we can be to their organizations. We are going in armed with data that shows our stores are more productive on a store-by-store basis than Kroger, Albertson's, Wal-Mart, Safeway and Ahold."

Donald told analysts he is not aware that any supermarket company has attempted this sort of presentation before.

The company said sales rose 7.3% to $997.7 million for the quarter and 6.8% to $2.0 billion for the half -- driven by five stores acquired from Grand Union -- while same-store sales rose 3.5% in the quarter and 3.3% in the half.

Net income was $5.2 million for the quarter, excluding amortization of excess reorganization value this year and reorganization expenses in the prior year, compared with a net loss; for the half, net income was $10.2 million, compared with a net loss.

Operating cash flow fell 4.2% to $45.3 million for the quarter and 2.7% to $90.5 million for the quarter.

The company said it is boosting guidance on same-store sales increases for the third quarter and full year to 2.75% to 3.25%, up from earlier predictions of 2% to 2.5%, attributing the move to improved food safety, customer service and shrink reduction programs.