* Analyst says deal unlikely due to company debt load
* Shares up 6.6 percent after early jump of 11 percent
(Adds analyst comment, background on company operations;
updates share move; adds byline)
By Lisa Baertlein
LOS ANGELES, March 12 Shares of Supervalu Inc
(SVU.N) gained as much as 11 percent in heavy trading Friday as
rumors circulated that the second-largest U.S. supermarket
operator could be poised for a leveraged buyout.
The shares reached $17.89, their highest level since June,
and finished the day up 6.6 percent at $17.13.
Supervalu, which operates stores under the Albertsons and
Jewel-Osco names, declined comment, saying it does not comment
on rumor or speculation.
Analysts were skeptical about the likelihood of such a
deal, noting that buyout rumors lately have run rampant and
involved names like GameStop Corp (GME.N), RadioShack Corp
RSH.N [ID:nN03256393] and Hologic Inc (HOLX.O)
"It's another takeover-du-jour story," Jud Pyle, chief
investment strategist at Options News Network, a division of
option market making firm PEAK6 Investments in Chicago, said in
reference to trading in Supervalu.
"The rumor making the rounds is that Supervalu could be the
target of a leveraged buyout. Rumor is they could fetch $22.50
Jefferies & Co supermarket analyst Scott Mushkin called any
such deal "unlikely ... it's pretty levered up." Supervalu is
carrying long-term debt of nearly $8 billion, many of its
stores require investment, and its prices are above those of
rivals in many markets, he said. [ID:nN12186506]
"On the face of it, it looks very difficult," said Mushkin.
At $22.50 a share, a deal would be at 6.5 to 7 times earnings
before interest, taxes, depreciation and amortization, he said.
Banks are currently financing LBOs at multiples of 6 to 6.5.
"Taking the whole thing private seems like a stretch," said
BMO Capital Markets analyst Karen Short, who said she didn't
give much credence to the rumor.
Still, she said "a lot of the supermarkets are LBO
candidates because they throw off a lot of cash."
Supervalu's debt load is higher than many of its peers, who
also have invested more money into renovating and updating
The company has $700 million in notes coming due in 2011,
but has said it has sufficient cash flows to meet its
In January, when the company reported its fiscal
third-quarter results, executives said year-to-date net cash
flows from operating activities were $798 million, compared
with $1.1 billion in the year-earlier period.
Year-to-date capital spending was $555 million, compared
with $949 million the year earlier.
In the options market, trading in Supervalu was brisk as
traders gravitated to March and April call options giving them
the right to buy Supervalu shares at $17.50.
Overall volume of about 39,000 contracts was 19 times the
recent average daily turnover, and was dominated by the trading
of 32,000 calls by midday, according to option analytics firm
Minneapolis-based Supervalu named Craig Herkert as chief
executive officer last May. Under Herkert, who was Wal-Mart
Stores Inc's (WMT.N) CEO of the Americas region, Supervalu has
sold some stores and announced plans to remodel others and
expand its lower-priced Save-A-Lot format. [ID:nN12226038]
(Reporting by Lisa Baertlein; additional reporting by Jessica
Wohl and Doris Frankel in Chicago, Blaise Robinson in London
and Jessica Hall in Philadelphia; Editing by Derek Caney, John
Wallace, Gary Hill)