NoDoji
Registered: May 2008
Posts: 2223 |
11-03-09 11:38 PM
Quote from Redneck trader:
NOD,
All due respect Maam What the hell
You a trader, an analyst, or an investor 
RN:
I have a trading account with Etrade that I'm not using. I felt a need to invest. Or, in this case, to divest. 
However, I just returned to my desk to see that news came across the wire late today that explains the inexplicable rise today of this (IMHO) zombie stock:
Great Atlantic & Pacific Tea Climbs On Merger Chatter
4:36 PM ET 11/3/09 | Dow Jones
By Aja Carmichael
NEW YORK (Dow Jones)--Shares of Great Atlantic & Pacific Tea Co. (GAP) climbed more than 14% Tuesday amid reports that its biggest stakeholder, German supermarket operator Tengelmann Group, would consider merging the U.S. supermarket company with a competitor.
According to reports from a German publication, a spokesman for Tengelmann, which holds a 38.6% stake in A&P, said it would consider merging the company with a competitor in the "medium term." The Frankfurter Allgemeine Zeitung also quoted Tengelmann Chief Executive Karl-Erivan Haub as saying the company could consider a merger in which Tengelmann would keep a reduced position in A&P but that it has no current plans to sell its stake.
A&P wasn't immediately available for comment, while a Tengelmann spokesman couldn't be reached.
Great Atlantic shares closed trading up 12% at $11.17 after earlier hitting an intraday high of $11.47. The stock has nearly doubled in the last three months.
The news follows similar reports in late September when Tengelmann's Haub, the father of A&P Chief Executive Christian Haub, said the group has no concrete plans to sell its A&P stake, refuting a report from German publication Manager Magazin.
Pali Research analyst Robert Summers noted the stock's positive reaction to the news in September but said those moves don't compare to Tuesday's "hyper-reaction."
"The stock was [recently] between six or seven dollars and the firing of the CEO elevated [beliefs of a merger]," said Summers.
In late October, Great Atlantic & Pacific Chief Executive Eric Claus departed the company due to the underperformance of its Pathmark integration, which has continued to dog the company. Executive Chairman Christian Haub reassumed the responsibilities of CEO during the search for a successor. Haub had served as CEO from 1998 to 2005.
Earlier this year, both Tengelmann and supermarket investor Yucaipa Cos. increased their investment in A&P, helping the company strengthen its balance sheet and liquidity. Yucaipa--already an A&P investor--increased its ownership investment to 27.6% and also added two directors to the company's board, bringing the total number of members to 11.
Pali's Summers, who rates the stock buy, said he would be surprised if anything developed from the latest potential merger reports as he can't imagine who would buy the company.
"There is a massive short squeeze and there really isn't a buyer out there, [nor] is there a logical supermarket chain that that would be willing to merge with A&P as most companies don't buy fixer uppers," said Summers.
Supermarket chains have been cutting costs and battling it out on prices to attract customers. However, the price wars have hurt grocers' margins as consumers seek out bargains by visiting a variety of retailers and buying only low-priced goods.
A&P bought Pathmark, a chain that tends to cater to customers looking for lower prices, for $1.4 billion in December 2007 and has been struggling with integration ever since. Instead of posting strong results during the economic downturn, the Pathmark business has struggled with negative same-store sales and negative year-over-year segment income.
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