Cerberus to invest in Supervalu, install new leadership

Only a couple weeks after a group led by Cerberus Capital Management agreed to buy five Supervalu grocery chains for $3.3 billion, an investment group led by Cerberus is scheduled to take control of 20-30% of Supervalu and install a new executive leadership group.

According to Neil Stern, a senior partner at McMillanDoolittle, it's a good deal for Supervalu "because it makes it a more viable company in the long run (by turning) the clock back to where it was in 2006, before the Albertsons acquisition, and it will now be clearer how the company is performing."

Once the deal is done, Supervalu will continue to:

• Operate as a wholesale distributor;
• Own or license the Save-A-Lot chain;
• Own the 184 stores operating as Cub Foods, Shoppers Food & Pharmacy, Farm Fresh, Shop 'n Save and Hornbacher's.

In addition, Sam Duncan will become Supervalu's president and chief executive officer. He has previously served in similar capacities at OfficeMax, ShopKo Stores, Fred Meyer and Ralphs Grocery Co.

According to analysts, Supervalu will have to develop a new organizational structure, cut costs, turn Save-A-Lot around and devise a long-term financial plan for the company.

Many believe the company's success will be driven by Save-A-Lot, as traditional grocery stores have more limited growth prospects.

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

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.