Tea Company Smokes $175 Million PIPE

The Great Atlantic & Pacific Tea Company (NYSE: GAP) has raised $175 million in PIPE funding from existing shareholders The Yucaipa Cos. ($115m) and Tengelmann Warenhandelsgesellschaft KG ($60m). Tengelmann now holds a 38.6% stake, while Yucaipa holds 27.6 percent.

PRESS RELEASE

The Great Atlantic & Pacific Tea Company, Inc. (A&P or the Company) (NYSE:GAP) today announced the execution of investment agreements between the Company and affiliates of The Yucaipa Companies, LLC (“Yucaipa”), and partners of Tengelmann Warenhandelsgesellschaft KG (“Tengelmann”) whereby Yucaipa will invest $115 million and Tengelmann will invest $60 million for a total purchase of $175 million of convertible preferred stock pursuant to a private offering.

With these new funds, A&P will be able to strengthen its balance sheet and have significantly increased liquidity available to pursue its business strategy thereby better positioning the Company to compete in the dynamic food retail industry. Under the terms of their agreements, Yucaipa and Tengelmann will purchase 115,000 and 60,000 shares of convertible preferred stock, respectively, each with an initial liquidation preference of $1,000. On a fully diluted basis, Tengelmann will remain the largest single shareholder with an ownership interest of 38.6 percent, with Yucaipa’s ownership interest increasing to 27.6 percent. In connection with the preferred stock investment, A&P’s Board of Directors will be comprised of the nine current directors plus two additional directors nominated by Yucaipa.

This transaction is conditioned upon, among other customary conditions set forth in the investment agreements, the completion of a private placement of the senior secured notes which the Company separately announced today.

According to Christian Haub, Executive Chairman, A&P, and Co-Chief Executive of Tengelmann, “This investment further solidifies Tengelmann’s over 30 year commitment to the Company’s success. Partnering with Yucaipa is an exciting opportunity to collaborate with one of the most successful investors in the supermarket industry, Ron Burkle. We believe this strategic partnership has the potential to unlock significant shareholder value and I look forward to working with Ron to make this a reality.”

Ron Burkle, CEO Yucaipa stated, “I’ve known and respected Christian for over a decade. We have had a great relationship and we appreciate this opportunity to invest with them.”

“This deal reconfirms Tengelmann’s long-standing commitment to this Company and our strategic plans. The addition of Yucaipa as a significant investment partner provides the necessary resources to successfully execute our strategies and navigate through this difficult economy effectively with a focus on building sustainable profitability in the longer-term,” said Eric Claus, President and CEO of A&P.

The preferred stock has an 8 annual percent dividend payable quarterly in cash, or a 9.5 percent annual dividend if paid in additional preferred stock, and is convertible, under certain conditions, at an initial conversion price of $5.00 per share. This represents a premium of approximately 7.5% percent to yesterday’s closing sale price of A&P’s common stock of $4.65. Tengelmann and Yucaipa, as holders of the preferred shares, will have the right to vote together with the holders of Common Stock on all matters upon which the holders of Common Stock are entitled to vote, on an as-converted basis, subject to certain New York Stock Exchange stockholder approval requirements.

The Company also released its fiscal 2009 first quarter results for the 16 weeks ended June 20, 2009. Sales for the first quarter were $2.8 billion versus $2.9 billion last year. Comparable store sales decreased 3.3%. For the first quarter, excluding non-operating items, adjusted EBITDA was $80 million versus $96 million last year. Adjusted income from operations was $2.3 million versus $16.2 million in last year’s first quarter. The non-operating items excluded from adjusted income from operations are listed on Schedule 3 of the press release and adjusted EBITDA is reconciled to net cash from operating activities on Schedule 4. Reported loss from continuing operations was $58.3 million compared to income of $2.8 million for last year’s first quarter.

Eric Claus, President and Chief Executive Officer, adds, “This quarter was challenging for our Company as the retail market continues to experience one of the most difficult economic environments in history. Our decline in comparable store sales this quarter was driven by a decline in the rate of our retail inflation, more promotional purchases and customers buying less.

We continue to see year-over-year increase in segment income within our Fresh, Gourmet and Discount businesses. Our Price Impact or Pathmark stores continue to be a challenge with year-over-year decline in segment income, driven by negative comparable store sales and lower gross margins, primarily resulting from higher promotional spending and price investments. Although, in the shorter term, this has negatively impacted our earnings, we believe this strategic pricing investment will well-position us to generate long-term growth overtime and once the overall economy improves.”

“The current challenging economy continues to impact our business. However, we are confident that our business optimization initiatives supported by our strategic investment agreements will benefit the Company and allow us to mitigate some of the difficulties we are experiencing. We are working on improving our results in revenues driven by our promotional and pricing strategies as well as decreased costs through greater efficiencies in labor and distribution while also benefiting from increased private label penetration and lower stock losses during the remainder of fiscal 2009,” stated Christian Haub, Executive Chairman, A&P.

About A&P
Founded in 1859, A&P is one of the nation’s first supermarket chains. The Company operates 435 stores in 8 states and the District of Columbia under the following trade names: A&P, Waldbaum’s, Pathmark, Pathmark Sav-a-Center, Best Cellars, The Food Emporium, Super Foodmart, Super Fresh and Food Basics.

Investors and other interested parties may listen to a pre-recorded message accessed through a link under “Webcast Events” on the “Investors” page of the Company’s Website, www.aptea.com, which will be available through August 20, 2009.