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Pantry Gets Golden Gallon

By Dave Marino-Nachison
October 17, 2003
Southeastern convenience store giant Pantry Inc. (Nasdaq: PTRY) was one of this morning's top percentage gainers on news that its acquisition of the Golden Gallon chain from the U.S. division of Dutch grocery store operator Koninklijke Ahold (NYSE: AHO) closed successfully.

The deal looks like a big positive for Pantry, which can now boast of increased coverage in the Southeast as well as new outlets that should significantly boost operating results down the line.

In a somewhat complicated transaction, Pantry sold and then leased back 114 Golden Gallon stores through a deal with Realty Income (NYSE: O), then purchased the balance -- 24 stores and a dairy plant, fuel hauling operation, corporate headquarters, and 25 undeveloped sites -- with proceeds from a separate loan. (The dairy plant and fuel hauling operation were subsequently sold to Pantry suppliers National Dairy Holdings and Eagle Transport, respectively.)

Management's comments on the Golden Gallon news were predictably upbeat: The company is getting a sizable boost to revenue and expects a quick jolt to net profit even without recording any additional "synergies."

Pantry has already retrained Golden Gallon employees and folded the chain into its supplier agreements. In short, everything seems to be going smoothly -- perhaps not surprisingly given Pantry's considerable experience folding in acquired stores and chains.

(For broader context, revisit Rex Moore's recent article on 7-Eleven (NYSE: SE), in which he discloses an addiction to fountain drinks, or Alyce Lomax's take on ConocoPhillips' (NYSE: COP) sale of Circle K.)

Admittedly, most of the company's acquisitions haven't been on the scale of Golden Gallon. Even so, the formula appears to be working -- at least if last month's preannouncement of full-year financial results is any indication.

Indeed, while the company has taken on more debt to finance this purchase, should Pantry continue to grow effectively and efficiently, its leverage should not be a hindrance, and the company should continue to reward investors -- just as it has for the last 12 months.

Dave Marino-Nachison can be reached at
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