Supervalu Soars After Saying It May Spin Off Save-A-Lot

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A Save-A-Lot store in St. Louis, Missouri.

Photographer: Peter Newcomb/Bloomberg

Supervalu Inc. surged the most in more than a year after saying it’s considering spinning off the Save-A-Lot grocery-store chain to focus more attention on its food-distribution business.

A timetable for the separation hasn’t been set, and there is no assurance a deal will be completed, Eden Prairie, Minnesota-based Supervalu said Tuesday in a statement. The company hired Barclays and Greenhill as financial advisers and Wachtell, Lipton, Rosen & Katz as legal adviser.

Spinning off Save-A-Lot would allow Supervalu to concentrate on wholesaling goods to other food retailers, which accounted for almost half of its sales in its most recent fiscal year. Save-A-Lot generated about a quarter of Supervalu’s sales. The chain has more than 1,300 stores, with about 430 owned by the company and 900 operated by licensees.

Chief Executive Officer Sam Duncan “is taking steps to pursue strategic alternatives sooner than we expected,” Ajay Jain, an analyst at Pivotal Research Group, said in a note.

The shares rose 11 percent to $8.14 at the close in New York, the biggest gain in more than 15 months.

If Supervalu does spin off Save-A-Lot, there would likely be some market demand for shares of the chain, said Joe Feldman, an analyst at Telsey Advisory Group.

Creating Buzz

“It’s a way to play the low- to middle-income consumer beyond just buying a dollar store or Wal-Mart,” Feldman said. “It’d probably create some buzz and awareness.”

The company on Tuesday also posted first-quarter profit and sales that topped analysts’ estimates. Save-A-Lot’s identical-store sales, however, trailed projections. They rose 0.6 percent in the quarter, while analysts estimated a gain of 2.6 percent, according to Consensus Metrix.

Supervalu, which also owns Cub Foods and Farm Fresh, is seeing more competition from both discounters and higher-end supermarkets. Aldi Inc. is expanding in the U.S., while Whole Foods Market Inc. is developing a grocery chain for millennials.