Los Angeles billionaire Ron Burkle, who made his fortune in groceries, is loading up his cart again to the delight of Wall Street.
Shares of Pathmark Stores Inc. and Wild Oats Markets Inc. jumped Thursday on news that Burkle, who once owned the Ralphs and Food 4 Less supermarket chains, was investing in the two beleaguered companies.
Burkle's Yucaipa Cos. said it would buy a 40% stake in Carteret, N.J.-based Pathmark for $150 million. The announcement came a day after Burkle reported buying a 9.2% stake in Wild Oats, which sells organic foods in 24 states.
Pathmark, a weak regional chain that filed for bankruptcy protection in 2000, is undercapitalized, said Andrew Wolf, a retail analyst at BB&T Capital Markets in Richmond, Va. If its stores, which are in need of remodeling, were more attractive and had better technology systems, Pathmark could increase sales, Wolf said.
The company will use the money from Burkle to renovate its 142 supermarkets in the Northeast and open new ones, Pathmark spokesman Harvey Gutman said. Pathmark's stores are similar to Ralphs in Southern California but have been squeezed hard by competitors in the New York, New Jersey and Philadelphia metropolitan areas.
"We believe that a de-leveraged Pathmark, with increased resources to invest in existing and new stores, will have a significant competitive advantage," Burkle said in a statement. "We see significant opportunity in the Northeast." He did not respond to requests for further comment.
Pathmark hired investment banker Dresdner Kleinwort Wasserstein in December to advise it on options including a sale, but there were no takers.
Yucaipa also agreed to offer Pathmark advice on corporate strategy, marketing, operations, finance and retail development for five years. The sale is expected to close this summer, at which point Yucaipa would add five members to Pathmark's six-member board of directors.
Shares of Pathmark soared 32%, or $1.44, on Thursday to $5.92 on Nasdaq. The stock had fallen 42% over the last year.
Wild Oats, based in Boulder, Colo., has 108 stores including 25 in Southern California, where it competes with Whole Foods Market Inc. and other purveyors of organic foods. The natural foods market is growing, but Wild Oats generally has smaller stores than Whole Foods and has trouble competing with them, Wolf said.
If Wild Oats is going to prosper, it needs larger, better-appointed stores, he said.
