Royal Ahold NV, the Dutch food retailer that acquired Giant Food Inc. in October, said yesterday that it plans to buy Pathmark Stores Inc. of New Jersey for $1.75 billion in cash and assumed debt as it strives to boost its growing share of the U.S. grocery market.

Ahold, the nation's fourth-largest supermarket company, said it plans to pay $250 million and assume the company's debt of about $1.5 billion. Pathmark's 132 stores are mainly in metropolitan New York.

Ahold said it will acquire all outstanding stock of SMG-II Holdings Corp, which controls Pathmark through its subsidiary, Supermarket General Holdings Corp., and make a tender offer of $38.25 per share for all publicly traded preferred shares of Supermarket General.

By folding Pathmark into its empire of five U.S. supermarket companies, Ahold expects to benefit from economies of scale and gain a stronger presence in northern New Jersey, New York City, Long Island, N.Y., and Philadelphia.

Pathmark, with estimated 1998 sales of $3.7 billion, has a market share of about 12 percent in the New York metropolitan area.

Supermarket chains, which operate on thin margins, have increasingly turned to consolidation as a way to lower costs and better compete against the much-larger mass discounters, which have begun to chip away at food retailers' market share by selling groceries.

Besides helping Ahold compete against mega-retailer Wal-Mart, which plans to expand its super center/grocery store concept on the East Coast, Pathmark can offer Ahold an advantage in under-served inner-city areas where it has a stronghold, said Burt Flickinger III, managing director of Reach Marketing, a retailing and marketing consulting firm in Westport, Conn.

Ahold operates the Edwards chain of supermarkets in New Jersey, New York City and Long Island, which it plans to merge with Pathmark and run under the Pathmark banner.

The Pathmark chain will operate as a stand-alone Ahold company, officials said.

"The acquisition itself is about filling in a gap in the market where historically Ahold has not had by any definition a leadership position," said David Shriver, director of retail for Credit Suisse First Boston in London.

"Edwards is one of four or five players slugging it out. What Pathmark represents is a way of pulling ahead of the pack."

A question remains as to whether Pathmark fits Ahold's strategy of acquiring market leaders in a given region, Shriver said.

Earnings rise 36%

Ahold announced the planned acquisition to coincide with the release yesterday of its fourth-quarter results, attributing positive sales and earnings in part to the Giant acquisition.

Ahold reported that net earnings rose 36 percent, while sales in the United States climbed 41 percent to $4.8 billion.

Ahold USA also announced yesterday its first major move to cut costs through consolidation since acquiring Giant.

By the end of the year, Ahold USA plans to merge the finance and accounting departments of its five supermarket chains into a single financial service center called Ahold Financial Services, which will be based in Carlisle, Pa.

Giant employs 150 accounting and financial workers, whose duties include processing accounts payable and accounts receivable, said Mark Berey, Giant's chief financial officer.

"A significant portion of that number will be impacted and consolidated into the new facility," Berey said.

Only a small staff will remain at the company's headquarters in Landover, he said.

Ahold's planned addition of Pathmark, which is subject to regulatory approval, should benefit Ahold USA and its operating divisions, said Hans Gobes, an Ahold spokesman based in the Netherlands.

Predicts $80 million saving

Besides Giant Food, Ahold owns Stop & Shop, with stores in Connecticut and Massachusetts; Giant of Carlisle, Pa., which includes the Edwards division; Tops Markets in western New York, and BI-LO in North Carolina and South Carolina.

Ahold said it expects $30 million in cost savings for the combined company in its first year and $50 million in savings the second year.

"It's a natural fit," Gobes said, adding that the company expects results similar to those it has seen since acquiring Giant. "We have seen in a short time many benefits from synergy and economies of scale, such as the exchange of know-how and expertise."

Pub Date: 3/10/99