Albertsons on the verge of purchasing Price Chopper

Reports earlier this week state that Albertsons (Acme, Shaw's, Safeway, etc.) is "on the verge" of acquiring Price Chopper, the leading supermarket by market share in the Albany, Schenectady and Glens Falls, NY markets. Price Chopper also has strong market share in Binghamton, NY, Utica, NY, Pittsfield, MA, Worcester, MA and Burlington, VT.

For the better part of this year, Price Chopper has been seeking financial partners to help transform its 135 stores to their new Market 32 format.

Reuters has reported that the price tag would be approximately $1 billion and would not include Price Chopper's real estate assets. Supermarket News estimated that Price Chopper's 2015 sales were $3.7 billion.

The purchase by Albertsons would fill the gap between its Pennsylvania-based Acme and Massachusetts-based Shaw's brands.

Not that it's relevant, but... I grew up in Price Chopper country and my first job was as a stock boy for one of the Clifton Park, NY stores. As an employee, I was mediocre at best (it's safe to say that price labels didn't always make it onto the products at the bottom of the freezer!).

Albertsons postpones IPO indefinitely

Albertsons, which had been expected to complete its initial public offering last Thursday, announced the day before that the IPO was postponed indefinitely due to recent market volatility. The company had said in a prospectus that it intended to offer 65.3 million shares priced at $23 to $26 per share, with the possibility of selling 9.8 million more shares if demand warranted it.

If all 75 million shares had been sold at the top of the range, the deal would have totaled $1.95 billion.

Albertsons operates about 2,200 stores in 33 states under banners that include Acme, Albertsons, Safeway, Vons, Jewel-Osco, Shaw's and others.

Supervalu to eliminate 1,100 jobs

Just days after the sale of five of its grocery chains was completed, Supervalu announced it will eliminate about 1,100 jobs, or approximately 3% of its workforce. The company said its remaining business will need fewer corporate and store support roles and functions.

Store-level and Save-A-Lot employees are not expected to be affected by the reductions.

On Thursday, March 21, Supervalu completed the sale of Acme, Albertson's, Jewel-Osco, Shaw's and Star Market to an investor group led by Cerberus Capital Management. Supervalu's remaining businesses include Save-A-Lot and smaller regional chains including Cub, Farm Fresh, Shoppers, Shop 'n Save and Hornbacher's. It also operates a wholesale grocery distribution business.

Property worth $4.4 billion in Supervalu deal

In a Wall Street Journal story published earlier this week, Karen Short of BMO Capital Markets estimates the property value of the real estate bought by Cerberus Capital Management and its partners from Supervalu to be worth $4.4 billion. The partnership group agreed to pay $3.3 billion for Albertsons, Acme, Jewel-Osco, Star Market and Shaw's grocery stores.

According to the article, about half the 877 stores to be purchased are company-owned or subject to ground leases.

Cerberus' partners in the deal - Kimco Realty, Klaff Realty, Lubert-Adler and Schottenstein Real Estate Group - are all real estate companies, and are the same partners that teamed with Cerberus in 2006 to purchase 650 Albertsons stores. The group sold off some of those stores, closed others and kept several in operation. And they reportedly earned significant profits.

According to Kimco COO Mike Pappagallo, "Even though we recognize that the benefit here is primarily improving the overall operation of the business, we're comfortable with the fact that the real estate value we have, at minimum, supports the purchase price."

Supervalu sells Acme and four other brands; Kimco in on the deal

Supervalu announced this morning it has a deal in place to sell Acme and four other supermarket chains for $3.3 billion to a group led by Cerberus Capital. The Cerberus group includes Kimco, the largest shopping center owner in the U.S., and Lubert-Adler Partners of Philadelphia, among others. Albertsons, Jewel-Osco, Shaw's and Star Market stores will be sold along with Acme.

Save-A-Lot, which has several stores in the Philadelphia region, will remain with Supervalu, along with Cub Foods, Farm Fresh, Shoppers, Shop 'n Save and Hornbachers. The company's food distribution business will also remain as part of Supervalu.

The Cerberus group is paying $100 million in cash and will assume approximately $3.2 billion in debt. It will also offer to purchase 30% of what remains of Supervalu for $4 per share. As of 12 noon today, Supervalu's stock was listed at $3.34 per share.

Wayne Sales, who was named Supervalu CEO last July, will be replaced by former OfficeMax CEO Sam Duncan.

The deal, which is projected to close by the end of the first quarter, includes 877 stores. Cerberus currently owns the Albertsons stores operated by Albertsons LLC, and once the deal closes they will own all Albertsons stores.

Acme, once the dominant grocer in the Philadelphia region and still one of the area's largest employers, has over 13,000 local workers at more than 100 supermarkets. Joe DiStefano of the Philadelphia Inquirer points out in his blog post today that Lubert Adler purchased Mervyn's department store in the late 2000s, then shut down the chain after paying itself millions in dividends. Although a court ordered them to repay the chain's creditors, the firm still profited from the deal.

Supervalu freezes pay, lays off workers as buyer conducts due diligence

Supervalu, the troubled supermarket chain whose banners in the Philadelphia region include Acme and Save-A-Lot, announced last week it would implement a pay freeze for all employees at its corporate headquarters in Minneapolis, MN. The company said it will also reduce or suspend matching contributions to employees' 401(k) plans starting next year.

Earlier in the month Supervalu announced that the company would layoff 700 people, or approximately 4% of the workforce, at Shaw's and Star Market, both of which operate in New England.

In the mean time, Cerberus Capital Management, which is in talks to buy Supervalu, is still conducting its due diligence. The two companies are familiar with each other, as Cerberus joined Supervalu in buying a stake in Albertson's in 2006. According to published reports, Cerberus currently owns the entity that operates 205 Albertson's stores, while Supervalu operates 564 of them.

Supervalu, which operates Shoppers, Bristol Farms, Cub and Jewel-Osco in addition to the banners mentioned above, has lost more that $2.5 billion over its past two fiscal years, and recently reported its 14th straight quarterly sales decrease. It is the third largest grocery chain in the United States behind Kroger and Safeway.

It has been reported that private equity firms KKR and TPG Capital have expressed interest in purchasing Supervalu, as well as billionaire Ron Burkle.

Supervalu fires CEO

Craig Herkert, Supervalu's CEO since May 2009, was fired yesterday and replaced by Board Chairman Wayne Sales. Herkert had been under fire by industry experts and journalists for much of his tenure at Supervalu (Acme, Save-A-Lot in the Philly region), and last week the company made news for its announcement that it would explore selling all or parts of the company, in addition to making significant expense cuts.

Sales is credited with turning around Canadian Tire, where he served as CEO from 2000 to 2006. He said yesterday he would take immediate steps to improve sales and cut costs at Supervalu, while improving relationships with Save-A-Lot licensees.

In addition to Acme and Save-A-Lot, Supervalu brands include Albertsons, Jewel-Osco, Shaw's, Cub Foods and Shoppers.

Save-A-Lot COO leaving, store operators are worried

As if Supervalu isn't having enough trouble with its traditional supermarkets, results at the company's star performer, discount grocer Save-A-Lot, are sagging as well. According to a recent Supermarket News story, licensees say higher costs and a lack of leadership at Supervalu are to blame.

The latest blow for Save-A-Lot and its licensees is the departure of COO Tom Lenkevich, a former licensee who many store operators thought of as their last ally at corporate headquarters. Lenkevich is resigning later this summer to pursue other opportunities.

Earlier this month Supervalu reported that Save-A-Lot's sales for the most recent quarter were flat compared to the same quarter one year ago, despite the addition of 53 more stores since that time. The company said declining identical store sales and higher costs related to Save-A-Lot's growth strategy resulted in lower profitability.

Save-A-Lot's largest licensee, who has 220 stores, agrees that higher costs are to blame, adding that as a result, prices are too high as well.

The Supermarket News story included the following quote from the licensee.

"Supervalu as a whole has bounced around in their priorities. When Herkert first came to Supervalu he said they were going to concentrate on price and expanding the store base. They spent the money expanding the store base without addressing price, not only at Save-A-Lot, but at the chains: Acme, Shaw's and Jewel. And that affects Save-A-Lot because as those chains falter, Supervalu was more dependent on money coming in from Save-A-Lot. It's gotten where the cart is before the horse."

The end may be near for Supervalu, Acme

Yesterday the board of directors for Minneapolis-based Supervalu (Acme, Save-A-Lot) said they are considering the sale of all or parts of the company, and will significantly cut expenses and capital spending.

The announcement came after Supervalu's financial results for its most recent quarter fell below expectations. The company's net earnings of $41 million were down 45% from the same period last year.

According to company leadership, fiscal 2013 capital expenditures would be reduced from previous estimates of $675 million to $450-$500 million, and operating expense cuts of $250 million can be expected over the next two years. In addition, Supervalu has suspended its dividend and replaced its current credit facility with a real estate backed loan.

In a conference call yesterday with analysts, CEO Craig Herkert said the company was not considering bankruptcy, but analysts believe it's a possible scenario considering the difficulty Supervalu will most likely face when trying to find a buyer.

Save-A-Lot, Supervalu's "limited-assortment" brand, is the banner analysts believe would be most attractive to a buyer. Other Supervalu brands include Albertsons, Jewel-Osco, Acme, Shaw's, Cub Foods and Shoppers.

Supervalu can be bought at a big discount, analysts say

Supervalu (Acme, Save-A-Lot), which operates more than 2,000 supermarkets in the U.S. including Albertsons, Jewel-Osco and Shaw's, continues to generate press as a  takeover target. Last week, Bloomberg said that Supervalu "is offering private equity shoppers the biggest discount of any supermarket chain in America."

Here's why:

• The company is expected to turn a profit this year for the first time in three years and has the industry's highest free cash flow yield (an overall return evaluation ratio of a stock). Bloomberg's data shows that their free cash flow yield is more than 10 times higher than the median for U.S. food retailers with at least $100 million in value.
• After Supervalu stock fell to a 30-year low last week, its valuation was 3.9 times earnings before interest, taxes, depreciation and amortization. According to Bloomberg, that's a third less than the industry median and about half the multiple for consumer staples companies in the S&P MidCap 400.

On the other hand, an analyst for Guggenheim Securities LLC points out that buyers may be turned off by Supervalu's debt. Bloomberg's data shows that the company's debt is higher than Kroger's and Safeway's, and almost five times the industry median.

Taking all factors into consideration, a strategist at JonesTrading Institutional Services LLC concludes that "the grocery store business is tremendously competitive, but a buyer that has an understanding of retail, would they take a shot at this? Absolutely."

Supervalu reports quarterly loss of $750 million

Supervalu reported a net loss of $750 million - or $3.54 per share - for the quarter ended December 3, 2011. The loss for the same quarter one year ago was $202 million. Sales for the quarter ended December 3 were $8.3 billion, compared to $8.7 billion for the comparable quarter one year ago.

Supervalu brands include Acme, Save-A-Lot, Albertson's, Cub Foods, Farm Fresh, Jewel-Osco, Shaw's/Star Market, Shop 'N Save and Shoppers.

Supervalu surprise - 2nd quarter profit!

Supervalu (Acme, Save-A-Lot) announced last week that it posted a $60 million profit for its second quarter, compared to a $1.47 billion loss for the same quarter a year ago. President and CEO Craig Heckert cited game-themed promotions that were successfully tested in Philadelphia-area Acme stores as a contributor to the company's success.

Despite the profit, same-store sales for the quarter were down 1.8% for the quarter compared to the same period one year ago, and total revenues fell 2.6% to $8.4 billion. Through the first half of their fiscal year, Supervalu's net income was $134 million on sales of $19.5 billion. One year ago, the company reported a $1.4 billion loss for the first half of its fiscal year.

Supervalu operates under many banners, including Acme, Save-A-Lot, Albertsons, Cub, Farm Fresh, Hornbacher's, Jewel-Osco, Lucky, Shaw's/Star Market, Shop 'N Save and Shoppers.