Yucaipa: If at First You Don’t Succeed, Buy, Buy Again
Most people probably thought the maneuvering was over when Supervalu, CVS and an investment group led by Cerberus Capital Management were chosen as the winning bidders for the Albertsons chain last year.
Of course, most people do not include Yucaipa Companies’ Ron Burkle. Just last week, Supervalu announced the private equity firm had filed its intention to purchase up to 11.6 percent ($680 million) of the wholesale and retail grocer’s common stock.
Yucaipa Companies, which is the largest shareholder in the Pathmark and Wild Oats grocery chains, is known for buying supermarket businesses on the cheap, getting them turned around and reselling at a sizeable profit. That, many assumed, was the company’s plan when it made its bid for Albertsons.
However, having failed in that attempt last year, Yucapia is now turning its sights on the company that prevailed in the bid for Albertsons. What can that mean for Supervalu?
According to a company press release, Supervalu’s CEO Jeff Noddle met recently with Mr. Burkle and was told Yucaipa was only interested in his company “for investment purposes.”
Discussion Questions: What do you make of Yucaipa’s plan to purchase nearly 12 percent of Supervalu’s common stock? What will Ron Burkle’s involvement
likely mean for Supervalu?
For someone with Ron Burkle’s experience, talents and skills, simply taking a passive investment in someone else’s retail enterprise would seem unlikely. The integration of something as large as Albertsons may very well involve divesting or selling off groups of stores (either old Albertsons or old SuperValus). Could it be that Yucaipa’s stake gives them an advance or inside track on some of these potential moves?
One thought: if Mr. Burkle saw SuperValu as a “turnaround” such as Yucaipa has focused on in the past, I don’t think now would be the time to buy the stock. Large scale merger integrations often result in short and medium term stock price deflation….the rate of progress, the lack of immediate operating margin improvement…many symptoms have led in the past to downward pressure on the stock price. If I were betting on a turnaround opportunity, I’d wait for a string of disappointing results.
But then again, I am not as sophisticated or successful at retail investing as Ron Burkle is!
It might be worthwhile for SuperValu, Wild Oats, and Pathmark to explore strategic alliances, even if they keep their managements separate. Just like GM, Renault, and Nissan buying parts in common, why not share key tasks in the supermarket business? How could that hurt the firms involved?
Pathmark – Majority Stockholder, SuperValu – Major Stockholder.
$680 million and 12% probably gets a major stake in deciding the course that gets steered. Could there be consolidation and a larger stake in SV in the future? I would certainly be inclined to bet that way. If this is a “passive” investment, then I can jump over my house (without the aid of steroids).
It certainly makes life more interesting, at least if you equate uncertainty with interesting.
Ron Burkle understands this industry and Ron Burkle understands growing the value of his investment. And, I suspect that somewhere down the road there is possibly a plan to do something creative with some of SV’s retail ops…perhaps in the Northeast.
No one invests $680 million just to be a quiet stockholder and collect dividends. SuperValu will soon be dancing for Mr. Burkle. From what I recall, Yucapia does a good job in building up companies. They sell the companies as they are peaking and the next owner generaly is not able to continue the momentum. It’s all about the dollars so I would expect to see SuperValu continue to make some strategic moves.
It’s not unreasonable to conjecture that a deal was cut with Yucaipa to exit the bidding for Albertsons in exchange for the opportunity to get cut into the combined entity at a later time. The perspectives that Yucaipa is now afforded into non-performing real-estate assets or other assets that are strategic to their regional equity holdings have tremendous value and would have otherwise been unattainable.
Smart, smart, smart. Ron has recognized a super value, in SV’s acquisition. The some of the parts here is greater than the whole, and this is what mergers and acquisitions are all about. He is simply reflecting what a good investment this is, regardless of what happens to the Albertsons brand and their position in the market place during the short term.
I find it interesting that Ron Burkle/Yucaipa also invested in Pay By Touch…and SuperValu and Albertsons were Pay By Touch’s first two major clients…prior to SuperValu’s buyout of Albertsons.
I would venture to guess that Mr Burkle will be a player in the next few months. He will have a voice; either a loud or silent one. From what I’ve read and heard about Yucaipa, they do a good job investing and divesting at the right time. In my opinion it may not be a bad idea for SV and their shareholders to have Burkle in the background either providing solid input or guidance.