When The Great Atlantic and Pacific Tea Co. -- better known as "A&P" -- announced it would acquirePathmark Stores for $1.3 billion, Moody's placed the buyer-to-be on a review list for possible downgrade. But A&P Executive Chairman Christian Haub explained to CNBC's Erin Burnett why the deal makes sense.
Appearing on "Street Signs," Haub said he'd been "talking for a couple of months" about the deal with supermarket billionaire Ronald Burkle, whose private-equity company took a stake in Pathmark back in 2005. The chairman said that Wal-Mart Stores, which offers ultra-discounted foods and "is beginning to penetrate the Northeast," is one compelling reason why A&P "needed to get bigger and stronger" via a merger. He also named smaller rivals like Shop-Rite, Stop & Shop and Whole Foods as adding to the M&A pressure.
"Bigger," yes, but observers may wonder how much "stronger" the combo company will be. Still, Haub predicted the hybrid supermarket will enjoy $150 million in synergies over the next two years. And while prices are rising in some areas -- e.g., fuel costs and corn-dependent products -- other factors, such as a "crop abundance in California," mean prices and the firm's costs are easing elsewhere, producing a nice balance.