Supervalu splits in half

MINNEAPOLIS — In a move that will reunite all Albertsons stores under one operator, Supervalu on Thursday morning announced a definitive agreement under which it will sell 877 stores across the Albertsons, Acme, Jewel-Osco, Shaw’s and Star Market banners and related Osco and Sav-on in-store pharmacies to AB Acquisition, an affiliate of Cerberus Capital Management, in a transaction valued at $3.3 billion.



Following the sale, Supervalu will consist of its wholesaler business, which serves 1,950 stores across the country; Save-A-Lot, the largest hard discount grocery chain in the United States, with approximately 1,300 stores across 35 states; and Supervalu's regional retail food banners Cub, Farm Fresh, Shoppers, Shop ‘n Save and Hornbacher’s. Across these three revenue streams, the new Supervalu is expected to generate annual revenues in excess of $17 billion. Going forward, Supervalu will be concentrating on right-sizing its operations and maximizing efficiencies, the company noted.



The sale will consist of the acquisition by AB Acquisition of the stock of New Albertsons, a wholly-owned subsidiary of Supervalu, which owns the banners, for $100 million in cash. New Albertsons will be sold to AB Acquisition subject to approximately $3.2 billion in debt, which will be retained by New Albertsons. As part of the transaction, AB Acquisition-owned Albertsons will reunite its Albertsons stores with the acquired NAI Albertsons stores.



In addition to the sale, within 10 business a newly-formed acquisition entity owned by a Cerberus-led investor consortium called Symphony Investors will conduct a tender offer for up to 30% of Supervalu's outstanding common stock at a purchase price of $4 per share in cash. The tender offer represents a 50% premium to Supervalu 30-day average closing share price as of Jan. 9.



"I cannot stress enough that the sale and tender offer collectively make Supervalu a strong company," Supervalu's current president and CEO Wayne Sales told analysts in a conference call Thursday morning. "I will leave the CEO position knowing we have made good process following the turnaround effort."



Following the closing of the transactions, Supervalu will name grocery retail veteran Sam Duncan president and CEO, replacing Sales. In addition, effective upon the closing of the transactions, five current Supervalu directors will resign. Immediately following the closing of the transactions, the size of the board will be reduced to seven members from the current 10 members. This seven member Board will consist of five current Supervalu directors and two board members designated by Symphony Investors, one of whom is Robert Miller, former Rite Aid chairman and current president and CEO of Albertsons, who will serve as non-executive chairman of the board. Miller and Duncan have worked together before at Fred Meyer. Following the completion of a search process, the board will be increased to a size of 11 directors, with the four new directors to consist of Duncan, an additional director appointed by Symphony Investors and two additional independent board members to be selected by the initial seven directors.



Duncan is expected to assume Supervalu leadership in late February. He most recently served from 2005 to 2011 as chairman, CEO and president of OfficeMax. Prior to joining OfficeMax, Duncan served from 2002 to 2005 as president and CEO of ShopKo Stores.



Miller presently serves as the CEO of Albertsons, a North American grocery company with approximately 192 retail grocery and drug stores across eight states. Albertsons is majority-owned by Cerberus Capital Management. Prior to joining Albertsons in 2006, Miller was chairman of Wild Oats Markets based in Boulder, Colo. In December of 1999, Miller was hired as chairman and CEO of Rite Aid, and led a successful turnaround of the nearly-bankrupt pharmacy operation. He continued to serve as chairman of Rite Aid until June 2007 and as director until 2011.



You can read more about Supervalu's third-quarter conference call here.