O'HARA, Pa. -- Industry analysts said Giant Eagle Inc. is a another likely candidate for Indianapolis-based regional grocery chain Marsh Supermarkets Inc., which is mulling a sale that would include its 160 Village Pantry convenience stores, according to a report by the Pittsburgh Business Times.
O'Hara, Pa.-based Giant Eaglewhich has 221 grocery stores in western Pennsylvania, Ohio, Maryland and West Virginia, as well as 93 GetGo c-storesis eyeing the properties as a way to expand westward and potentially become a public company in the process, said [image-nocss] the report.
CSP Daily News reported last week that Laval, Quebec-based Alimentation Couche-Tard was rumored to be interested in Marsh's Village Pantry c-stores, as well.
Neither Marsh nor Giant Eagle would comment to the Business Times on a deal. Giant Eagle issued a statement via e-mail: Giant Eagle continues to examine opportunities for strategic growth, but has nothing to publicly disclose on this matter. Jodi Marsh, spokesperson for Marsh, told the newspaper that the company can't confirm or deny any speculation while exploring strategic alternatives.
But analysts told the paper that publicly traded Marsh's territory and its parallel history as a family-owned company would make it an attractive buy for Giant Eagle.
The sale of the Village Pantry could help the financially beleaguered Marsh gain some needed relief. It recently retained Merrill Lynch to explore strategic options, including a possible sale of its assets. Marsh had fiscal 2005 sales of $1.75 billion, but it has struggled to contain costs and remain competitive in its own backyard, the report said. Its second-quarter financials revealed a $3.4 million loss for the three months ended September 30.
Marsh's turf, Indiana and western Ohio, would fill in a gap and take Giant Eagle westward. And some of its other businessesVillage Pantry, which accounts for 17% of Marsh's sales, as well as a significant catering operationcould fit in nicely with counterpart units at Giant Eagle, analysts said.
I'd be very surprised if [Giant Eagle] wouldn't look at a property coming available in such proximity to their current area, Bill Bishop, president of Barrington, Ill.-based Willard Bishop Consulting, a research firm that has worked with both Giant Eagle and Marsh, told the paper. They're almost touching fingertips.
Each is also a 74-year-old regional powerhouse, a major employer and a player in their respective communities. Both are largely controlled by their founding families, as well. Even though Marsh is publicly traded, the Marsh family owns 20% of the company and a number of family embers, including CEO Don Marsh, hold high-ranking positions, said the report.
The Pittsburgh region's largest private company, Giant Eagle had $5.2 billion in sales last year, and its last major expansion was the 1997 purchase of Cleveland-based Riser Foods for $403 million. It already had 38 stores in Ohio at that time, but Riser gave it further depth in the state, as well as subsidiaries that pushed Giant Eagle into southeastern Michigan.
Ted Taft, managing director of Meridian Consulting, a Westport, Conn. firm specializing in the retail and supermarket sector, told the paper that a Giant Eagle/Marsh match would be an excellent fit geographically and a nice fit of cultures and synergies. There are a lot of similarities in how they operate.
Bishop, who described Giant Eagle as a company with solid management that's positioned for continued growth, said he believes a deal would make sense. He suspects that Marsh is more likely to turn to a company with similar values than the megaretailers that are dominating the Midwest, a trend that has yet to hit Pittsburgh. Adjacent markets give people a chance to share headquarters and some distribution capabilities, he said. They can support a large number of stores with the same managerial buying and distribution overhead and that can be quite a nice area of savings.
Steven Baumgarten, a financial analyst who tracks the retail industry for Philadelphia-based investment firm Janney Montgomery Scott, told the paper that Marsh's heavy concentration of c-stores could be a good match for Giant Eagle. But he added that Marsh fell short of upgrading its core grocery stores, meaning there will be additional costs for any acquirer.
They'll have to put in a heavy investment to remodel the stores, he added.
More daunting is the strong presence of nontraditional retailers such as Super Target and Wal-Mart stores competing with supermarkets in the Indiana region, far more prevalent than in the Pittsburgh area, the report said. Giant Eagle has very commanding market share positions in western Pennsylvania and in eastern Ohio, Baumgarten said. The competition in Indiana is much more intense instead of much weaker competitors, like Foodland and Shop n Save.
Baumgarten said it comes down to where Giant Eagle wants to be.
They might be better off buying specific stores and locations.
Gregory Melvin, chief investments officer at money management firm C.S. McKee LLP, said he figures Giant Eagle may be strong enough to fend off Wal-Mart. It already has in southwestern Pennsylvania. Marsh looked weak to Wal-Mart, he told the paperd. If Giant Eagle took them over, maybe Wal-Mart would attack some place else, like New England.
Melvin said a Giant Eagle acquisition of Marsh would be a brilliant move if there's any pressure within Giant Eagle to monetize things because it's a way for Giant Eagle to go public without paying 7% to Wall Street to do it. I don't know what Giant Eagle's ownership looks like, but there are a lot of family members and they have to be dealing with estate issues. I think you'd find a contingent within that ownership saying, Buy these guys, go public'.
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