Supervalu Inc. announced yesterday that it will sell five of its retail chains, including Albertsons, Acme, Jewel-Osco, Shaw’s, and Star Market stores to an investor group led by Cerberus Capital Management LP in a transaction valued at $3.3 billion in which the buyer will take on $3.2 billion of Supervalu’s debt. Supevalu has been losing shoppers to rivals like Kroger and Wal-Mart. The deal is slated to close at the end of March.
The Cerberus investor group includes Kimco Realty Corporation, Klaff Realty LP, Lubert-Adler Partners, and Schottenstein Real Estate Group. As part of the deal, a Cerberus-led investor group will acquire up to 30 percent of Supervalu’s common stock at $4 per share. The stock closed yesterday at $3.04.
After the deal, Supervalu’s business will include a food wholesaler serving 1,950 U.S. stores; the discount grocery chain Save-A-Lot; and the regional grocery chains Cub, Farm Fresh, Shoppers, Shop ‘n Save, and Hornbacher’s. Supervalu Chief Executive Wayne Sales said the company’s remaining supermarket chains hold strong competitive positions and are not in need of significant investment. The transaction will also leave the company with a “much more manageable” debt load, Sales said on a conference call with analysts. Sales who joined the company last summer to put together a deal will leave when it is completed. Supervalu said its remaining business should generate annual revenue in excess of $17 billion. In the fiscal year ended in February 2012, the company’s total revenue was $36.1 billion.
Following the closing of the transaction, Supervalue will be headed by grocery retail veteran Sam Duncan, as president and chief executive officer. Duncan is the former chairman and CEO of OfficeMax and the former president and CEO of ShopKo stores.
Cerberus strategy for Supervalu is expected to mirror that at Albertsons, which was purchased by Cerberus, Supervalu, and CVS Caremark Corp. for $10 billion in 2006. Under that deal, Cerberus acquired 655 Albertsons’ locations and Supervalu bought the remaining 564. That Albertsons’ acquisition left Supervalu with burdensome debt. “Cerberus will most likely do what they did six years ago with Albertsons–sell, close, sell, close,” supermarket consultant David Livingston said.
