Albertsons Says ‘No Sale’ for Entire Company

Discussion
Dec 23, 2005
George Anderson

By George Anderson


Albertsons announced that it is ending talks to sell the entire company after its Board of Directors decided it was not going to get the type of bid it was looking for to make a deal.


The company did hold out the possibility that it would sell off undisclosed underperforming assets in a smaller transaction.


In an interview with The Idaho Statesman, Albertsons CEO Larry Johnston said he will continue to lead the company and business would be conducted as usual.


“We have a well-documented strategic plan that is updated and approved each January during our annual strategic planning session with senior management and our Board of Directors,” he said. “These plans encompass marketing, new formats, visual merchandising, succession planning, premium-fresh positioning, category management, performance management, own brands, supply chain excellence and a three-year technology roadmap. In addition to pursuing that strategic plan we will also continue to implement significant cost reduction and productivity initiatives throughout the company. We began this journey in mid-2001 and have a goal to remove $1.25 billion from our cost structure by year-end 2006. We will also focus every day on growing sales in every store by taking care of our customers better than anyone else, as well as building their loyalty through innovative new merchandising and marketing programs.”


According to Mr. Johnston, the process of readying Albertsons for a possible sale gave management a clearer picture of the underlying strength of the company.


“We did a deep dive into every area of our business, and we know a lot more about our strengths and our challenges than we ever have before. Armed with this knowledge, we can move forward decisively to make improvements that will allow us to continue to be one of the nation’s largest and best food and drug retailers,” he said.


Mr. Johnston said the Board made the decision to explore a possible sale of the company because it didn’t feel as though industry analysts were giving the company its due.


“We had become increasingly convinced that our many accomplishments, strong core leadership market positions, and incredible portfolio of assets and real estate were not being properly valued by Wall Street,” he said. “We have maintained a relatively strong performance in the face of unprecedented competition, and we have outperformed our traditional competitors in most categories, but we still have seen our shareholder equity under pressure. We have a responsibility to maximize value for the shareholders whose investments are largely responsible for fueling the company’s growth and progress.”


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9 Comments on "Albertsons Says ‘No Sale’ for Entire Company"


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Bobby Martyna
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Bobby Martyna
15 years 2 months ago

Pretty likely the deal fell apart due to all parties wanting to capture the value premium — essentially the upside that the financial buyers (Cerberus and Kimco) would have enjoyed on the sell side. Albertsons was willing to reduce some of their take of the upside premium, but sought to collar the deal on the downside by insisting on certain unusual guarantees from the buyers.

When the buyers did not agree, my guess is that Goldman told them they would sell the non-performing assets for Albertsons at a ‘pretty good’ premium, leaving Albertsons richer and leaner by reducing debt and drag on operating income.

M. Jericho Banks PhD
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M. Jericho Banks PhD
15 years 2 months ago
In the timeless words of Jerry Seinfeld, “Yadda, yadda, yadda.” Albertsons decided to investigate selling opportunities because industry analysts weren’t “giving the company its due?” Yes, of course. That’s a common business practice with which we’re all familiar. The stories about cost-cutting measures at Albertsons abound, including store-level economies that include turning off half the lights and stocking old produce. Surly, uncertain, poorly-trained clerks and checkers complete the picture of a store that is rarely someone’s first choice. Earlier this week someone beat me to the punch in hypothesizing that Supervalu’s Jeff Noddle could/would make Albertsons work if SV purchased a major stake in the enterprise. So, why turn the lights off on that scenario? Larry Johnston is certainly no merchant, a truism that has echoed among grocery folk since his ascendancy. How about new leadership for Albertsons? Why not lure Jeff from Minneapolis to Boise (insert clever comment here) with promises of lucre and ownership? Heck, let him live where he wants. He’s a true merchant, which Albertsons desperately needs right now (and for… Read more »
Mark Lilien
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15 years 2 months ago

It’s extremely unusual for a company to publicly put itself up for sale, find several well-capitalized bidders, announce a deal, have the deal fall through, and then decide not to sell the company after all. It’s especially unusual since there doesn’t seem to be any surprise change in the environment, such as a sudden natural catastrophe, unexpected major lawsuit, etc. The board owes its shareholders more of an explanation than the one given by the CEO. It’s almost as if he’s saying, “Gee, we didn’t know what we had until the bidders told us.” It’s not possible to tell exactly who the major shareholders are at any 1 moment, but the most recent proxy statement shows at least 30% ownership by investment companies. I suspect that the investment company ownership today is even greater. These investors are unlikely to be patient.

David Livingston
Guest
15 years 2 months ago

Underperforming supermarkets don’t fetch much as we have learned from Winn Dixie. Super Valu is a smart company and they are not going to pay a premium price for plain vanilla.

This should be no surprise. Albertsons has been working both sides of the fence for a long time working on selling the assets off in many small pieces while at the same time looking to sell the company as a whole. This just makes good business sense and obviously Albertsons feels they can do better dismantling the company in small steps. There is nothing wrong with having a Plan B. Some of my clients have been trying to do one to ten store deals for months and this is good news for them.

Kai Clarke
Guest
15 years 2 months ago

Albertsons does not have a true value opportunity for an outside company to purchase. This became clear during the due diligence phase, and this was reflected in this deal. Albertsons knows this and needs to offer their shareholders, and the eventual purchaser of their company, something more than they have today. This will require Albertsons better defining their shopping experience, as well as better positioning their other chain-store holdings (most importantly Sav-On, which should be their best performing holding). There is more happening here than the CEO is telling us, and we will probably see some changes at Albertsons before any other kind of sale, for all or part of Albertsons, is made.

Warren Thayer
Guest
15 years 2 months ago

I agree that there has to be a lot more here than is out on the table. Like others, I have my suspicions. To my mind, Albertsons is doing many things right, and many things wrong. They innovate in some areas, but lag behind in others. It’s easy for a CEO to get up and point to good things, and be right. But there are so many other huge problems out there, that get mentioned only in analysts’ reports and of course widespread conversations within the industry. SuperValu’s likely back-off reminds me of its response to Kmart a few years back. Given its present circumstances, I don’t see Albertsons adding a lot of value in the next year or two, to make it more valuable for another potential sale. There are some very good people at mid-level Albertsons, so I’d love to be wrong.

James Carr
Guest
James Carr
15 years 2 months ago
One of the surest ways to find out how much your house is worth is to put a For Sale By Owner sign in the yard and see what offers you get. Obviously, ABS was not seriously for sale. Too bad. There is so much oversupply in the grocery retailing business, further consolidation is inevitable. I am currently working in Las Vegas, where ABS has been fighting Smith’s and Vons for some years. Wal-Mart has recently opened many Neighborhood Markets and has many more on the plan table. After experiencing their (WMT) store, I sense a bloodbath in the making. Many communities are settling down to the following mix: a membership store (Costco, etc.), a local favorite (Publix, Ukrop’s, Smith’s, etc.), Wal-Mart’s Neighborhood Market, and a niche player or two like Whole Foods, Trader Joe’s, 99 Ranch Market, Fresh Market, etc. And in my view, it’s only SuperValue who seems to have a formula for going head-to-head with WMT for that middle tier. ABS has some awesome assets. Bristol Farms could be a great niche… Read more »
David Mallon
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David Mallon
15 years 2 months ago

If the Board had thought the current management could turn the company around, they wouldn’t have put it up for sale. The rejection of offers reflects their fear that one of the acquirers will make them look bad by getting the company for a bargain price. I don’t think it means they have confidence in “Plan B.” Albertsons will be sold within 5 years, and the price will be lower than the latest offering.

Camille P. Schuster, PhD.
Guest
15 years 2 months ago

Doing an in-depth analysis of the business and learning their strengths and weaknesses is awesome. Now management needs to do the same exercise regarding their customers – by store and by region. Identifying a core group of customers should be one of the guidelines used to determine which stores to keep and which stores to let lose. Knowing internal strengths and weaknesses as well as obtaining a good understanding of customers would put Albertsons in a position to make some smart decisions going forward. They have started the process; however, their learning is not over yet.

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