Supervalu announced yesterday that it has agreed to sell its Albertsons, Acme, Jewel-Osco, Shaw's and Star Market grocery chains along with its Osco and Sav-on in-store pharmacies to AB Acquisition LLC, an affiliate of a Cerberus Capital Management investor consortium, which includes Kimco Realty, Klaff Realty, Lubert-Adler Partners and Schottenstein Real Estate Group.
The deal is valued at roughly $3.3 billion, which includes the assumption of $3.2 billion in debt plus $100 million in cash. As part of the deal, AB Acquisition plans a tender offer for up to 30 percent of Supervalu's outstanding common stock at a price of $4 per share. The tender offer represents a 50 percent premium to the 30-day closing average for Supervalu's shares as of Jan. 9.
The deal will bring back together all Albertsons stores under single management. The banner had been split between Supervalu and AB-owned Albertsons LLC back in 2006.
Following the deal close, Supervalu will be led by Sam Duncan as president and CEO. Mr. Duncan, the former chairman and CEO of OfficeMax, will replace current Supervalu president, CEO and chairman Wayne Sales. In addition, five current Supervalu board members will resign and the total board will be cut from 10 to seven directors. Five current members will remain on the board and two others will be designated by Symphony Investors, one of whom will be Robert Miller, current president and CEO of Albertsons LLC. Mr. Miller will serve as non-executive chairman of the board.
The new Supervalu will consist of the company's current grocery wholesale business serving nearly 2,000 stores across the U.S. as well as the Save-A-Lot limited assortment chain with its 1,300 stores. The company will also continue to operate its Cub, Farm Fresh, Hornbacher's, Shoppers, and Shop 'n Save regional banners.
Mr. Sales believes the new owners will be more successful in getting the acquired banners turned around. "Obviously, we've been talking for a long, long time about the need to invest in price, to invest in the customer experience, and to invest in fresh food," Mr. Sales is quoted as telling an investor group by The Wall Street Journal. The group, he said, "brings a very strong balance sheet to be able to immediately invest" and has "a very strong and experienced retail, food leadership team."
According to Albertsons LLC, same-store sales in that group have achieved gains in 19 of the past 25 quarters. Much of the credit there goes to Mr. Miller, a former COO at Kroger who later helped turn around the Rite Aid drugstore chain.
Many however, see the deal as a real estate play.
"They are not in this because they have a passion for running grocery stores. You don't buy failing grocery stores because you want to be in the grocery business," David Livingston, principal, DJL Research and a RetailWire BrainTrust panelist, told Reuters.
There does not appear to be a lot of optimism on Wall Street for the new Supervalu either.
"For Supervalu, specially the remaining business, there's no signs at all of stabilization," Scott Mushkin, an analyst at Jefferies & Co. told Bloomberg News. "Save-A-Lot has deteriorated," he said.
How much more or less likely are the chains involved in this deal to get turned around as a result of it?