Prometheus 6

Quote of note:

Pathmark's shareholders were not being asked to choose among various offers that had come in after Yucaipa made its offer; they were simply asked to vote up or down on the $7-a-share deal. Pathmark's board even agreed to what is known as a "force the vote" provision in its purchase agreement with Yucaipa, which required that even if Pathmark's directors changed their minds and recommended that shareholders vote against the deal, the vote would still take place.

As it turned out, there were other offers: one from an unidentified bidder proposing to pay $7.50 a share for the entire company, and finally the $8.75 bid from another unidentified firm; that was the offer Pathmark disclosed just before the vote.

What? You Don't Trust The Company?

THE struggle to ensure fair treatment for investors is far from won. Just last week, shareholders of Pathmark Stores, a supermarket chain in the Northeast, received the equivalent of day-old bread.

Last Thursday, they voted resoundingly to approve a $150 million investment in the company by the Yucaipa Companies, a privately held investment firm in Los Angeles. According to Pathmark, 83 percent of the company's shares were cast in support of the deal. The company said it would issue new shares in exchange for the investment.

The approval came despite the fact that the Yucaipa offer, valued at about $7 a share, was far inferior to another offer to buy the company outright for $8.75 a share.

Furthermore, the Yucaipa deal puts no money in shareholders' pockets because it is just an investment in Pathmark. Yucaipa is run by Ron Burkle, a California billionaire who is better known for his big donations to the Democratic Party.

Why were shareholders willing to approve such a low-ball offer? A big reason could be that Pathmark's board urged shareholders to approve the Yucaipa deal. Stockholders, even now, are inclined to trust their directors.

But another factor may have come into play. Some investors may not have learned about the higher offer until after they had mailed in their proxies. That's because Pathmark, which received the $8.75 offer on June 1, did not disclose it to shareholders until June 7, in a regulatory filing. That was two days before the vote.

Pathmark's shareholders were not being asked to choose among various offers that had come in after Yucaipa made its offer; they were simply asked to vote up or down on the $7-a-share deal. Pathmark's board even agreed to what is known as a "force the vote" provision in its purchase agreement with Yucaipa, which required that even if Pathmark's directors changed their minds and recommended that shareholders vote against the deal, the vote would still take place.

As it turned out, there were other offers: one from an unidentified bidder proposing to pay $7.50 a share for the entire company, and finally the $8.75 bid from another unidentified firm; that was the offer Pathmark disclosed just before the vote.

Did Pathmark receive still other bids before the vote? Harvey M. Gutman, a spokesman, would say only that "the company is comfortable that it made the appropriate disclosures to its stockholders throughout the process."