PATHMARK TO GO PUBLIC AFTER FILING CHAPTER 11

CARTERET, N.J. -- Pathmark Stores here said it plans to become a public company later this year after filing a prepackaged reorganization plan with the U.S. Bankruptcy Court -- a move likely to make the chain more attractive to potential buyers, industry observers told SN last week.

operate without both hands tied behind our back, as we have for the last 13 years.

"That would certainly make us more attractive [to potential buyers], but that's not the reason for taking this action."

Asked if Pathmark expects the reorganization to ultimately result in the sale of the company, the spokesman replied, "It's been clear over the years that, given the strength of the Pathmark franchise, we would be more profitable and therefore more attractive to other companies if we had less debt."

He said the reorganization will eliminate approximately $960 million of bond debt, leaving the company with approximately $590 million of outstanding debt remaining.

The company said trade creditors will not be affected by the reorganization plan and no employee layoffs are proposed.

In other developments:

Pathmark said sales for the first quarter ended April 29 rose 2.8% to $919.2 million and same-store sales increased 0.7%, while operating cash flow declined 7.3% to $45.7 million.

The company said it has obtained a $75 million debtor-in-possession financing facility to enable it to continue normal operations during the restructuring and $600 million in exit financing from Chase Manhattan Bank, New York, to make full repayment to its existing credit facilities and to provide approximately $200 million for post-reorganization operations.

Burt Flickinger, retail consultant for Reach Marketing, Westport, Conn., told SN a deleveraged Pathmark would be "the last publicly held crown jewel" and would make a perfect fit for various U.S. and European companies.

According to a variety of observers, companies potentially interested in acquiring Pathmark include the following:

Safeway, Pleasanton, Calif., deemed by many the most likely buyer.

Gary Giblen, portfolio manager for Giblen Capital, Darien, Conn. (which said it expects soon to move to New York), said Safeway is the likeliest acquirer "because it makes the best strategic fit, it has the ability to integrate Pathmark smoothly and Jim Donald used to work for Safeway [in its Maryland-based Eastern division]."

He also said the recent move by Safeway to turn its Maryland distribution center over to C&S Wholesale Grocers, Brattleboro, Vt. -- which also services Pathmark in the Northeast -- could be a significant indicator of things to come. "No one was expecting Safeway to make that move, and it certainly appears to be tied in with a possible extended partnership between Safeway and Pathmark," Giblen said.

Flickinger noted that, given Safeway's Baltimore-Washington sales base, "Pathmark would give Safeway the size and scale it needs to be a major competitive force in the East."

Albertson's, Boise, Idaho. "The acquisition of Pathmark would do the same for Albertson's that it would for Safeway by strengthening its established base of stores -- Acme Markets in Philadelphia," Flickinger said. With 30 stores in the Philadelphia market, where Acme dominates, Flickinger said he does not foresee serious antitrust issues.

Delhaize, Brussels, Belgium. "Pathmark would be a perfect piece in the puzzle between Delhaize's Food Lion operations in the Southeast and its pending Hannaford acquisition in New England," Flickinger said. "Such a transaction would strengthen Food Lion's operations in central Pennsylvania and would allow Delhaize to challenge Ahold for East Coast leadership."

A distressed-securities analyst contacted by SN agreed that Delhaize is a possible acquirer, "though like Albertson's, it may not be ready to do another acquisition right now."

J. Sainsbury, London, parent company of Shaw's Supermarkets, East Bridgewater, Mass. "A Pathmark acquisition would help Shaw's to build critical mass," Flickinger said. The distressed-securities analyst said Sainsbury is "still in the game, but it's got its hands full in the United Kingdom and may not be focussed on the U.S." (Sainsbury in releasing its quarterly results said it will remain in the U.S., but has no plans for further expansion here. See story, Page 12.)

Carrefour, Paris, "which is looking for ways to get back into the U.S., though it's a dark horse for a Pathmark acquisition," Flickinger said.

Ahold, which, the distressed-securities analyst said might still be interested in buying Pathmark (albeit at a lower price than it had bid previously), an economic move that would make possible divestitures more palatable.

Pathmark disclosed the reorganization plan after reaching agreement with a committee of its bondholders who control $445.7 million, or 46%, of the company's bond debt.

The company began the formal process last week of soliciting approval of the reorganization plan from 50% of all bondholders representing at least two-thirds of the dollar amount represented by each class of bondholder. The voting deadline was set for 5 p.m. on June 27, the company said.

Once the plan has been approved, Pathmark said it would file a prepackaged Chapter 11 in U.S. Bankruptcy Court in Delaware; it said it anticipates emerging as a public company by late summer or early fall, with bondholders receiving 100% of the company's common stock and warrants to purchase additional shares.

A high-yield analyst who asked not to be named told SN the restructuring will give Pathmark more financial flexibility. "After Pathmark uses $400 million of the $600 million from Chase Manhattan to pay off existing bank debt, it will have the remaining $200 million to use for working capital to grow the business, and that's more than it has under its existing credit facility.