Supervalu, Potential Buyer Discuss Sale of All or Part of Co.

Citing an unnamed “person familiar with the matter,” The Wall Street Journal said that private equity firm Cerberus Capital Management, LP, is considering a deal to buy Supervalu’s entire business and another to purchase just its Albertsons stores.

Three days after shares of Supervalu, Inc., slid 19 percent following a report that a possible deal for the grocer had stalled, a Sunday report in The Wall Street Journal indicated that Cerberus Capital Management, LP, is working on an acquisition and is willing to pursue multiple options.
 
Citing an unnamed “personal familiar with the matter,” the newspaper said that the private equity firm is considering a deal to buy Eden Prairie-based Supervalu’s entire business and another to purchase just its Albertsons stores.
 
The two parties were reportedly in active negotiations over the weekend, although The Wall Street Journal said that it wasn’t clear whether a deal would be reached. In recent weeks, discussions between Cerberus and Supervalu have mostly focused on an acquisition of the entire company for a deal that could be valued at roughly $5 billion, the newspaper reported, citing an unnamed source. But the possibility of instead buying Albertsons stores has lately come to figure more prominently in discussions, the person said. The Albertsons possibility surfaced as other potential bidders have expressed interest in pieces of Supervalu and after Cerberus and banks disagreed over financing terms, according to The Wall Street Journal.
 
Cerberus and its partners in the potential deal, a group of real estate firms, have reportedly sought financing from banks and planned to invest equity of about $800 million for a deal for the whole company. But that figure could change as they determine which Supervalu assets Cerberus will try to purchase.
 
A Thursday report by Bloomberg News indicated that Cerberus’ pursuit of Supervalu had stalled because the firm had trouble obtaining the funds for a leveraged buyout—news that didn’t sit well with Supervalu investors, prompting the decline in the company’s stock price, which closed at $2.28 that day. (The stock price closed at $2.38 on Friday and $2.68 on Monday.)
 
Citing unnamed sources, Bloomberg said late last week that potential lenders were concerned about how Supervalu would manage an increased debt load as its revenue shrinks. Lenders are also reportedly pushing Cerberus to put more money into the deal than it wanted to pay. (According to the Star Tribune, private equity firms typically pile debt onto the companies they purchase, and Supervalu already has substantial debt from its 2006 buyout of the Albertsons supermarket chain.)
 
Cerberus hasn’t yet presented Supervalu with a formal bid, The Wall Street Journal reported, again citing an unnamed source.
 
Meanwhile, Supervalu said late last week that its previously announced “review of strategic alternatives is proceeding” and that it “continues to be in active discussion with several parties.”
 
Supervalu said in July that it was reviewing “strategic alternatives”—including a possible sale of all or parts of the company.
 
In October, the company reported a net loss of $111 million, or 52 cents per share, for the quarter that ended September 8—which it chalked up to one-time charges, including eroding asset values and costs related to store closures. Excluding those $111 million in charges, the company broke even for the quarter, compared to earnings of $60 million, or 28 cents per share, during the same period a year ago. Revenue, meanwhile, totaled $8.04 billion, down about 4.6 percent from $8.43 billion during the same period a year ago.

Supervalu is among Minnesota’s five largest public companies based on revenue. It serves customers through a network of approximately 4,400 stores and has about 125,000 employees. The company reported a net loss of $1 billion on net sales of $36.1 billion in its most recently completed fiscal year.