* Selling Albertsons, Acme, Jewel-Osco, Shaw's, Star Market
* Cerberus leads investor group in deal
* $3.3 bln deal includes assumption of $3.2 bln in debt
* Group to take up to 30 percent of remaining Supervalu
* Supervalu shares up almost 8 percent
By Olivia Oran and Lisa Baertlein
Jan 10 Supervalu Inc struck a $3.3
billion deal to reduce its burdensome debt by selling five
retail grocery chains to an investor group led by Cerberus
Capital Management LP, the No. 3 U.S. grocery store
operator announced on Thursday.
Shares in Supervalu jumped 7.9 percent to $3.29 on the New
York Stock Exchange. The company has been losing shoppers to
rivals like Kroger Co and Wal-Mart Stores Inc.
Supervalu, which also reported a quarterly profit, said it
would sell the Albertsons, Acme, Jewel-Osco, Shaw's and Star
Market chains and in-store pharmacy under the Osco and Sav-on
names. The transaction will be valued at $3.3 billion, in which
the buyer will take on $3.2 billion of Supervalu's debt.
After the deal, slated to close by the end of March,
Supervalu's business will include a food wholesaler serving
1,950 U.S. stores; the discount grocery chain Save-A-Lot, which
offers a smaller assortment of low-priced merchandise than a
typical supermarkets; and the regional grocery chains Cub, Farm
Fresh, Shoppers, Shop 'n Save and Hornbacher's.
As part of the deal, a Cerberus-led group will launch a
tender offer for up to 30 percent of Supervalu's common stock at
$4 per share, which represents a 50 percent premium to the
30-day average closing share price.
The Cerberus investor group includes real estate firms Kimco
Realty Corp, Klaff Realty LP, Lubert-Adler Partners and
Schottenstein Real Estate Group.
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. The CEO joined the company over the summer to put
together a deal and will leave when it is completed.
Supervalu said its remaining businesses 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
The grocery distribution business will represent about 47
percent of the remaining company's revenue, Sales said.
Save-A-Lot will contribute one-quarter of revenue and the
remaining grocery chains will kick in 28 percent. Executives
declined to give additional financial information.
"It's back to square one," Cantor Fitzgerald analyst Ajay
Jain said of post-deal Supervalu, which will have a footprint
similar to what it was before the Albertsons acquisition that
left Supervalu with burdensome debt.
Cerberus' Supervalu strategy is widely expected to mirror
its play-book at Albertsons - which was purchased by the private
equity firm, Supervalu and CVS Caremark Corp for $10
billion in 2006.
Under that deal, Cerberus acquired 655 Albertsons locations
and Supervalu bought the remaining 564.
Cerberus will reunite its newly purchased Albertsons stores
with those it already owns.
"Cerberus will most likely do what they did six years ago
with Albertsons - sell, close, sell, close," supermarket
consultant David Livingston said.
"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," Livingston
Supervalu has no plans to sell additional assets. Pension
liabilities for the chains it sold will transfer to the new
owners, executives said on a conference call with analysts.
Goldman Sachs Group Inc and Greenhill & Co Inc
advised Supervalu on the transaction. Lazard and
Barclays PLC advised Cerberus.
SALES STILL UNDER PRESSURE
Minneapolis, Minnesota-based Supervalu separately reported a
quarterly profit of $16 million, or 8 cents per share, for the
third quarter ended Dec. 1, compared with a year-earlier loss of
$750 million, or $3.54 per share.
Excluding an after-tax gain related to a cash settlement
from credit card companies and after-tax charges primarily
related to store closures, it earned $5 million, or 3 cents per
share, in the latest quarter.
Sales fell 5 percent to $7.91 billion.
Supervalu's grocery stores reported a 4.5 percent decline in
sales at identical stores in the latest quarter. The company
defines that measure as sales at supermarkets operating for four
full quarters, including store expansions, and excluding fuel
Identical store sales at Save-A-Lot declined 4.1 percent.
Supervalu expects to trim about $400 million of its
remaining debt this fiscal year, and sees capital spending of
about $500 million, including plans for new Save-A-Lot stores
and about 40 store remodels.