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(Reuters) - Supervalu Inc (SVU.N) said it would sell its Save-A-Lot business to Canadian private equity firm Onex Corp OCX.TO for $1.37 billion, more than a year after making public plans to spin off the discount grocery chain.
Supervalu has been looking to separate the more profitable division, which also generates about a quarter of the company's sales, from its slower-growing grocery wholesale and food retail businesses as bigger rivals such as Wal-Mart Stores Inc (WMT.N) increase their focus on groceries.
Supervalu will enter into a five-year agreement to provide Save-A-Lot with some services and support functions as part of the deal, the company said on Monday.
Save-A-Lot has a network of about 1,370 company-owned and licensed stores across 37 states in the United States, the Caribbean and Central America.
Onex made the best offer in an auction for Save-A-Lot, Reuters reported in September.
Supervalu decided to explore an outright sale of the discount grocery chain after receiving interest from several private equity firms, Reuters reported in December.
Supervalu said on Monday it expects to use the sale proceeds to prepay at least $750 million of its outstanding term loan.
The deal is expected to close by Jan. 31, the companies said.
Barclays Capital Inc and Greenhill & Co LLC are financial advisers to Supervalu, while Wachtell, Lipton, Rosen & Katz is the legal adviser.
Reporting by Sruthi Ramakrishnan in Bengaluru; Editing by Sriraj Kalluvila