Private equity firms reportly planning to bid on Save-A-Lot

A recent Reuters report stated that several private equity firms plan to bid on Save-A-Lot, currently a Supervalu banner, in the coming weeks. If the report is accurate, it is not likely that the discount grocer would be spun off as a public entity, as many thought it would.

Reuters' anonymous sources named Advent International; KKR; Clayton, Dubilier & Rice; TPG Capital; Onex Corp., and Thomas H. Lee Partners as potential bidders that could go as high as $1.8 billion.

Cerberus exploring a deal to takeover Safeway

According to a report from The Chicago Tribune, Cerberus Capital Management is exploring a deal for all or part of Safeway, the second-largest supermarket operator in the U.S. In addition, Supermarket News said this morning that according to a Reuters report, Safeway has engaged Goldman Sachs to explore a potential private equity takeover.

Safeway, which exited the Philadelphia market by selling or closing its Genuardi's stores (with the exception of one remaining store in Audubon, PA) and recently announced that it plans to exit the Chicago market by selling its Dominick's chain, just received clearance from Canada to sell its 212 stores there to Empire Co. for $5.8 billion in cash.

Earlier this year, Cerberus led an investor group that included Kimco in a $3.3 billion acquisition of a group of supermarket chains from Supervalu that included Acme, Albertsons and Jewel-Osco.

Other grocery deals completed this year included Kroger's $2.5 billion acquisition of Harris Teeter, Bi-Lo Holdings $265 million purchase of three Delhaize chains, and Spartan's acquisition of Nash Finch.

Safeway has experience with private equity, as KKR took the supermarket chain private in 1986. KKR sold its stake 13 years later and reportedly made a $7 billion profit.

According to Safeway's website, there are currently over 1,600 Safeway stores in the United States and Canada. Banners include Safeway, Vons, Dominick's, Randalls, Tom Thumb and Carrs.

Talks heating up between Supervalu and Cerberus

After reports last week that talks between Supervalu and Cerberus Capital Management had cooled, it looks like they have heated up again. A businessweek.com report earlier today says that the struggling national grocery chain is "moving toward a deal" to sell Albertsons and Save-A-Lot to Cerberus.

Previous discussions centered around Cerberus buying the entire company, which includes Acme and others, but reportedly lenders wanted Cerberus to invest about $1.5 billion of the $5 billion +/- purchase price, nearly double their proposed amount.

The new deal being considered has Cerberus controlling Albertsons and Save-A-Lot, Supervalu's two largest chains, and taking an equity stake in the remainder of the company. Supervalu would then attempt to restructure or sell the remaining chains.

Private equity firm KKR & Co. has also expressed interest in Save-A-Lot, according to numerous reports.

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 attracting buyers for parts, not the whole

A Bloomberg story reported last week that Supervalu (Acme & Save-A-Lot in the Philadelphia market) has attracted buyers that are interested in parts of the company rather than the whole. Supervalu prefers to sell the entire company, and has extended the deadline for offers past the original October 15 deadline. It has been working with Goldman Sachs and Greenhill & Co. to find a buyer since mid-summer.

Bloomberg's sources say that KKR & Co., TPG Capital, Cerberus Capital Managment LP and billionaire Ron Burkle have expressed interest. Burkle and his company, Yucaipa Cos., helped A&P emerge from bankruptcy earlier this year.

Supervalu is the country's third largest grocery chain and has several retail banners, including pharmacies and a distribution business. In the last two years it has lost more than $2.5 billion over the past two fiscal years, and its market value has plummeted.

Many analysts continue to believe that Save-A-Lot may be Supervalu's most valuable asset, and the company's distribution business may also be attractive to buyers.