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Cerberus-Led Group Agrees to Acquire Supervalu Chains

Cerberus Group to Buy Supervalu Chains in $3.3 Billion Deal
A Cerberus Capital Management LP-led investor group agreed to acquire Supervalu Inc.s Albertsons, Acme, Jewel-Osco, Shaws and Star Market grocery stores in a transaction valued at about $3.3 billion. Photographer: Matthew Staver/Bloomberg

A Cerberus Capital Management LP-led investor group agreed to acquire Supervalu Inc.’s Albertsons, Acme, Jewel-Osco, Shaw’s and Star Market grocery stores in a transaction valued at about $3.3 billion.

Cerberus also will lead a group to conduct a tender offer to buy as much as 30 percent of Supervalu’s common stock for $4 a share in cash, the companies said today in a statement. After the transactions are completed, Sam Duncan, the former chairman and chief executive officer of OfficeMax Inc., will become CEO of Supervalu, replacing Wayne Sales, the companies said.

The third-largest U.S. grocery chain has eliminated jobs and accelerated price cuts at stores as it struggles to keep pace with discounters including Wal-Mart Stores Inc. and Target Corp. Supervalu sales have fallen for three straight years and are forecast to drop 4.5 percent to $34.5 billion in its fiscal 2013, according to data compiled by Bloomberg.

“For Supervalu, specially the remaining business, there’s no signs at all of stabilization,” Scott Mushkin, an analyst at Jefferies & Co. in New York, said in an interview. “Save-A-Lot has deteriorated” and margin is narrowing in the company’s distribution business, he said.

A positive from the deal is that the remaining business will be less capital intensive to run because some Save-A-Lot locations are operated by licensees, Mushkin said.

Sales Drop

The company today reported that revenue fell 5 percent to $7.91 billion in the three months ended Dec. 1, according to a separate Supervalu statement. Sales dropped at its traditional retail food banners and at Save-A-Lot locations, it said.

Supervalu rose 14 percent to $3.47 at the close in New York, the highest price in six months. The Eden Prairie, Minnesota-based company’s shares tumbled 70 percent last year.

The sale leaves Supervalu with the Save-A-Lot chain, the company’s largest with about 1,300 stores across the country, as well as the Cub, Farm Fresh, Shoppers, Shop ’n Save and Hornbacher’s regional chains. It also has a wholesale business that distributes groceries to food retailers.

Cerberus already owns some Albertsons stores. In 2006, the New York-based private-equity firm had led an investment group that bought more than 600 Albertsons -- including in Dallas, Florida and Northern California -- as part of Supervalu’s acquisition of the chain, a deal valued at $17.4 billion at the time.

Other Buyers

The group buying the five grocery chains, and their related Osco and Sav-on pharmacies, also includes Kimco Realty Corp., Klaff Realty LP, Lubert-Adler Partners and Schottenstein Real Estate Group.

Kimco, the largest owner of U.S. neighborhood shopping centers, already owned a 13 percent interest in the joint venture that owns a portion of Albertsons, according to New Hyde Park, New York-based Kimco’s latest quarterly regulatory filing. It is investing $76.5 million in the venture, the company said today in a statement.

Kimco invested $51 million in 2006 in the investment group for the part of Albertson’s and that investment has returned $245 million, Rich Moore, an analyst with RBC Capital Markets in Solon, Ohio, said in a telephone interview.

“What you have here now is an opportunity to maximize the value of the real estate,” Moore said. “There’s no one who knows it better.”

Less Vulnerable

Investors buy grocery-anchored shopping centers because they are seen as less vulnerable to slumps in the economy. Centers that have the best grocery store in the market attract other tenants, such as sandwich shops and dry cleaners, helping boost landlords.

“Everybody goes to the grocery store,” Moore said. “There will be no time where grocery stores don’t work.”

Supervalu announced in July that Goldman Sachs Group Inc. and Greenhill & Co. were advising it on strategic alternatives and that it would suspend its dividend and reduce near-term capital spending. Later that month, Supervalu named Sales, a board member at the time, to replace Craig Herkert as chief executive officer.

During the review of alternatives, the company attracted interest from billionaire Ronald Burkle, as well as private-equity firms KKR and TPG Capital, people with knowledge of the matter have said. Supervalu had asked potential buyers to bid for the entire business while suitors inquired about individual parts of the company, people familiar with the matter said in August.

Lazard Ltd. and Barclays Plc advised Cerberus in the deal.

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