Better economies do not always help all players.  The grocery business is already one which operates on razor-thin margins, so any hiccup can cause great pain for investors in the food segment of retail.  The Great Atlantic & Pacific Tea Company, Inc. (NYSE: GAP) has had a difficult 2010 and it has never been able to recapture its former glory.  Its history goes back to the 1859 and about a century ago it was to America in many cases what Wal-Mart Stores Inc. (NYSE: WMT) is today.  Now it is on the verge of bankruptcy.

A report this morning from Bloomberg is murdering shares on reports that the formerly-great A&P is considering filing for bankruptcy protection.  It noted that the filing could be as soon as the coming days.

This would not necessarily be the end of the company as an entity.  The report calls it a move to restructure its debt.  When a debt squeeze results in bankruptcy, the usual outcome is a total value death for shareholders.  It is usually the holders of that debt that emerge as the new owners after bankruptcy protection comes.

A&P had more than 15,000 stores in the 1920’s and 1930’s.  Now it is a small fraction of that, and more shrinkage is expected as it closes unprofitable stores.  As of November 11, 2010, it operated 395 retail stores in 8 states (and D.C.) under the A&P, Waldbaum’s, Pathmark, Best Cellars, The Food Emporium, Super Foodmart, SuperFresh, and Food Basics. Its sales have continued to shrink and losses continue to swell.

Its most recent balance sheet in September was only about $96 million in cash and equivalents but it had swelling debt: $959.7 million in long-term debt, $1.245 billion in ‘other liabilities’ and almost $84.5 million in deferred liabilities.  Its net negative equity was -$816.2 million and its net tangible assets are listed as -$1.068 billion.

Shares are down 66% at $0.96 on more than 12 million shares after less than two hours of trading.  The 52-week range was violated and the new range for the last year is $0.86 to $13.00. This was a $30+ stock as recently as 2008.

The Great Atlantic & Pacific Tea Company may soon be called The Bankrupt Atlantic & Pacific Tea Company.  The turnaround here is one which just won’t turn around.  In fact, or in fiction, the turnaround looks and feels a lot like the Kobayashi Maru.

JON C. OGG

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