* Selling Albertsons, Acme, Jewel-Osco, Shaw's, Star Market
* Cerberus leads investor group in deal
* $3.3 bln deal includes assumption of $3.2 bln in debt
* Group to take up to 30 percent of remaining Supervalu
* Supervalu shares soar on announcement
By Olivia Oran and Lisa Baertlein
Jan 10 Supervalu Inc struck a $3.3
billion deal to reduce its burdensome debt by selling five of
its supermarket chains to an investor group led by Cerberus
Capital Management LP, the No. 3 U.S. grocery store
operator said on Thursday.
Supervalu has been losing customers to rivals like Kroger Co
and Wal-Mart Stores Inc. News of the pending
asset sale sent its shares up more than 14 percent on the New
York Stock Exchange.
Supervalu said the sale includes 877 stores from the
Albertsons, Acme, Jewel-Osco, Shaw's and Star Market chains as
well as in-store pharmacies under the Osco and Sav-on names.
The deal is seen as a real estate play for the buyer, which
will spend $100 million in cash and take on $3.2 billion of
The sale is expected to close by the end of March. When that
happens, Supervalu's business will include a food wholesaler
serving 1,950 U.S. stores; the 1,300-store discount grocery
chain Save-A-Lot; and the regional grocery chains Cub, Farm
Fresh, Shoppers, Shop 'n Save and Hornbacher's.
As part of the deal, the Cerberus-led group will launch a
tender offer for up to 30 percent of Supervalu's common stock at
$4 per share, which represents a 50 percent premium to the
30-day average closing share price.
Supervalu's grocery distribution business will represent
about 47 percent of the company's revenue after the sale.
Save-A-Lot will contribute one-quarter of revenue and the
remaining grocery chains will kick in 28 percent. Executives
declined to give additional financial information.
Those businesses should generate annual revenue in excess of
$17 billion. In the fiscal year ended in February 2012, the
company's total revenue was $36.1 billion.
Goldman Sachs Group Inc and Greenhill & Co Inc
advised Supervalu on the transaction. Lazard and
Barclays PLC advised Cerberus.
ALBERTSONS: THE SEQUEL
Supervalu, Cerberus and CVS Caremark Corp bought
Albertsons Inc in a 2006 deal valued at more than $17 billion.
Supervalu's slice topped $12 billion, roughly half of which was
from the assumption of debt.
Supervalu's portion of the purchase included more than 1,100
stores - virtually all of which were part of chains it is now
Cerberus bought 655 stores for around $1 billion.
The deal saddled Supervalu with heavy debt that crippled the
company when the U.S. recession hit about a year later.
"It's back to square one," Cantor Fitzgerald analyst Ajay
Jain said of Supervalu, which had $6.18 billion in long-term
debt and capital lease obligations at the end of its latest
Turning around Supervalu's supermarket operations will be
tough sledding, said analysts. That's because non-union
retailers such as Walmart, Target Corp, Costco Wholesale
Corp and Family Dollar Stores Inc are offering
food at rock-bottom prices to lure shoppers. Traditional grocers
like Supervalu and Kroger use union labor and, as a result, have
"An operational turnaround is extremely difficult, no matter
who is running those (store) banners," Morningstar analyst
Michael Keara said.
As a result, many on Wall Street view the latest deal as a
property play. Cerebrus' partners in the Supervalu purchase
include real estate firms Kimco Realty Corp, Klaff
Realty LP, Lubert-Adler Partners and Schottenstein Real Estate
Group, which also were key players in the 2006 Alberstons deal.
The group is likely to sell and close stores, as it did the
last time around, supermarket consultant David Livingston said.
"They are not in this because they have a passion for
running grocery stores. You don't buy failing grocery stores
because you want to be in the grocery business," he said.
Supervalu had originally hoped to sell the entire company,
but financing issues prevented that, experts told Reuters.
Supervalu's shares leaped 14.1 percent to $3.47 on Thursday.