October 24, 2012 / 8:11 PM / in 5 years

Cerberus bid for Supervalu seen as prelude to breakup

NEW YORK, Oct 24 (Reuters) - A sale of Supervalu Inc heralds an eventual break-up of the far-flung supermarket operator, with its diverse brands and assets sold to rival supermarket chain operators and private equity firms, according to people familiar with the matter.

Buyout firm Cerberus Capital Management is preparing a takeover bid for the third-largest U.S. supermarket chain, with an eye toward divesting the troubled company’s assets to several parties only interested in pieces, the people said.

The board of Supervalu is also weighing a piecemeal sale, after its earlier efforts to sell the company as a whole failed to generate enough buyer interest, the people said.

A few months into the auction, only Cerberus is believed to be pursuing Supervalu as a single entity, some of the people said. Most interested parties, including Dutch retailer Ahold , C&S Wholesale Grocers, KKR & Co LP and other buyout firms, are looking at select assets only, the people said.

Supervalu will evaluate if a piecemeal sale could fetch a higher price than selling it outright to one buyer, the people said. A goal to maximize value, however, will be measured against the merits of pursuing one single transaction, which would be far more simple and less risky, the people said.

A sale to Cerberus would mean the buyout firm would be given the job of turning around the struggling company and doing a breakup itself, they said.

The people asked not to be named because details of the process are not public. A Supervalu spokesperson said the company is in talks with several parties, but declined to give any further details. Cerberus could not be reached for comment.


Cerberus, the New York-based buyout firm with turnaround expertise, is in talks to line up several billion dollars in debt financing from banks including JPMorgan Chase & Co and Bank of America, according to the people familiar with the matter. A buyout of Supervalu could also require an equity check of more than $900 million, the people said.

Cerberus’ Supervalu strategy is widely expected to mirror its playbook at Albertsons, the supermarket chain that was sold to the private equity investor, Supervalu and CVS Caremark Corp for $10 billion in 2006.

Cerberus acquired 655 Albertsons locations and a few locations of other various brands in the complicated carve-out, under which Supervalu bought the remaining 564 stores in the Albertsons chain. Cerberus sold most of its assets, but held on to Albertsons.

Similarly, any Supervalu buyout by the investor would be followed by a series of divestitures, people familiar with the matter said.

With its existing Albertsons footprint, Cerberus is expected to retain the chain while looking to divest other businesses such as Jewel-Osco, Save-A-Lot and Shoppers, which have attracted interest from other buyers, the people said.

Netherlands’ Ahold is interested in the Shoppers chain, several people familiar with the matter said, while C&S Wholesale is interested in Supervalu’s distribution business, the people said.

Buyout shops KKR, TPG Capital and Ron Burkle’s Yucaipa are also looking at Supervalu’s other businesses, they added. Save-A-Lot has been the company’s best-performing business, while Albertsons has been its Achilles’ heel.

Ahold and KKR declined to comment. C&S, TPG and Yucaipa could not be reached for comment.

Supervalu is weighing a sale after losing customers to competing supermarket operators like Wal-Mart Stores Inc and Kroger, which has forced Supervalu to aggressively close stores and cut costs.

The Eden Prarie, Minnesota-based company said in July it was working with advisers Goldman Sachs Group and Greenhill & Co for a strategic review. It disclosed in its earnings call last week that it is in talks with several suitors.

The company has struggled with a large debt burden as well as pension liabilities which could make a sales process difficult, analysts have said. Supervalu has $6 billion in long term debt obligations, according to its latest quarterly statement.

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