Food for Thought

Shareholders of Pathmark Stores Inc. (Carteret, N.J.) will vote today on whether the supermarket chain in New York, New Jersey and Philadelphia should accept a takeover bid by The Yucaipa Cos. LLC (Los Angeles). Pathmark’s directors have recommended that shareholders approve the transaction.

The $150 million deal ($7 a share) would give Yucaipa a 40 percent interest in Pathmark, if it goes through. But none of the Yucaipa money would go to Pathmark shareholders. It would go directly to the company, which would use it to spruce up some of the 142 Pathmark stores, build new ones and pay down debt. Yucaipa, which also owns the Jurgensen’s, Falley’s and Alpha Beta chains among others, would provide advice to Pathmark on corporate strategy, marketing and retail development.

One question for Pathmark shareholders, though anxious for some energy in the depressed food retailer, is to determine why the company’s board has recommended the Yucaipa deal over competing bids that are far higher and that would actually put money in its owners’ pockets. For example, one bidder, which the company has not identified, said it would pay $8.75 a share to buy Pathmark outright. This offer is backed by a financing commitment, Pathmark regulatory filings have noted. (None of the bidders has been identified.)

However, today’s vote is strictly one to accept or reject the Yucaipa transaction. Among the reasons Pathmark’s directors have given urging shareholder approval of the Yucaipa deal were the investment firm’s “generally successful record” and the promise that stockholders would participate in any upside that might result from improved performance at the company in coming years. It said the $8.75-a-share offer was not a better deal because it was unlikely to be completed for several months, while the Yucaipa transaction could be done this month.

Under the terms of the Yucaipa deal, Pathmark’s current management would stay on.