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Supervalu shares rally on $3.3 bln sale of 5 grocery banners

Supervalu shares rally on $3.3 bln sale of 5 grocery banners


Grocery chain Supervalu’s (NYSE:SVU) stock rose over seven per cent Thursday, after it said it will sell five of its retail grocery banners to AB Acquisition LLC for $3.3 billion.

Shares of the company were up 7.43 per cent as at about 11:45 a.m. EDT, trading at $3.27.

The company said it will sell its Albertsons, Acme, Jewel-Osco, Shaw’s and Star Market stores and related Osco and Sav-on in-store pharmacies to AB Acquisition, an affiliate of a Cerberus Capital Management-led investor consortium.

The consortium also includes Kimco Realty Corp. (NYSE: KIM), Klaff Realty LP, Lubert-Adler Partners and Schottenstein Real Estate Group.

Under the terms of the deal, AB Acquisition will buy Supervalu’s wholly-owned subsidiary New Albertsons Inc. (NAI) for $100 million in cash. NAI will be sold subject to roughly $3.2 billion in debt, which it will retain. 

In addition to the sale, a newly-formed acquisition entity owned by a Cerberus-led investor consortium will conduct a tender offer for up to 30 per cent of Supervalu’s stock at a purchase price of $4.00 per share in cash.

The offer represents a 50-per-cent premium to Supervalu’s 30-day average closing share price as of January 9.

Closing of the deal and the tender offer is expected in the first quarter, after which time Supervalu will be headed by grocery retail veteran Sam Duncan, replacing current president, CEO and chairman, Wayne Sales. 

Following the sale, Supervalu will consist of its independent business unit, a food wholesaler which serves 1,950 stores across the country; Save-A-Lot, the largest hard discount grocery chain in the U.S; and its regional retail food banners Cub, Farm Fresh, Shoppers, Shop ‘n Save and Hornbacher’s. 

The company said it expects to generate annual revenues in excess of $17 billion under its new model. 

In other news Thursday, Supervalu said third-quarter revenue slipped five per cent as same-store sales fell on increased competition.

For the quarter that ended December 1, the company posted a net loss of $750 million or $3.54 per diluted share. 

Adjusted for certain items, Supervalu reported net earnings of $5 million or three cents per diluted share, compared to $50 million or 24 cents per diluted share in the year-ago period.

Sales fell five per cent to 7.9 billion compared to $8.3 billion last year.

Analysts polled by Thomson Reuters expected per share profit of five cents, on $7.89 billion in sales.

The company noted that the decrease in sales was mostly due to a decline of 4.5 per cent in same store sales in its retail food segment, while its Save-A-Lot network same-store sales dropped 4.1 per cent.

Same-store sales were influenced by the stressed consumer, the competitive environment, and continued investment in achieving competitive pricing, it added.

The company last year introduced a new pricing strategy in a bid to get more shoppers into its stores, and compete with companies like Kroger (NYSE:KR) and Wal-Mart (NYSE:WMT).

Gross profit margin slipped to 21.2 per cent, compared to 21.7 per cent in the year-ago period. 

The company’s retail food unit saw sales fall 7.4 per cent to $4.96 billion, while sales in its Save-A-Lot unit declined 1.6 per cent to $966 million. Third quarter independent business sales stood at $1.99 billion, flat with the year ago period.

Looking ahead, Supervalu said it expects debt reduction for fiscal 2013 to be roughly $400 million. Cash capital spending is expected to be $500 million.


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January 11 2012

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