Supervalu enters agreement to sell five grocery banners

Supervalu, Minneapolis, announced a definitive agreement under which it will sell its Albertsons, Acme, Jewel-Osco, Shaw’s and Star Market stores and related Osco and Sav-on in-store pharmacies to AB Acquisition LLC, an affiliate of a Cerberus Capital Management L.P.-led investor consortium that also includes Kimco Realty Corp., Klaff Realty LP, Lubert-Adler Partners and Schottenstein Real Estate Group, in a transaction valued at $3.3 billion.

The sale will consist of the acquisition by AB Acquisition of the stock of New Albertsons Inc. (NAI), a wholly owned subsidiary of Supervalu, which owns the banners, for $100 million in cash. NAI will be sold to AB Acquisition subject to approximately $3.2 billion in debt, which will be retained by NAI, Supervalu said. As part of the transaction, which includes 877 stores across the banners, AB Acquisition-owned Albertson’s LLC will reunite its Albertson’s stores with the acquired NAI Albertsons stores.

In addition to the sale, within 10 business days of Jan. 10, a newly formed acquisition entity owned by a Cerberus-led investor consortium (Symphony Investors) will conduct a tender offer for up to 30 percent of Supervalu’s outstanding common stock at a purchase price of $4.00 per share in cash. The tender offer represents a 50 percent premium to Supervalu’s 30-day average closing share price as of Jan. 9, Supervalu said, and provides the company’s shareholders with the opportunity to maintain an equity stake in Supervalu moving forward.

In the event that Symphony Investors does not obtain at least 19.9 percent of the outstanding shares of Supervalu common stock pursuant to the tender offer, Supervalu will be obligated to issue new shares of common stock to Symphony Investors at the tender offer price such that after giving effect to the tender offer and the issuance, Symphony Investors would own a number of shares representing at least 19.9 percent of Supervalu’s outstanding common stock prior to the Issuance. Supervalu also said it will have the option to issue to Symphony Investors additional new shares of Supervalu common stock at the tender offer price, subject to an overall cap of $250 million on Symphony Investors purchase of common stock pursuant to the tender offer, the issuance and the optional issuance, as well as a total issuance of primary common shares of not more than 19.9 percent.

Following the closing of the transactions, Supervalu said it will be headed by grocery retail veteran Sam Duncan, who will become president and CEO, replacing Wayne Sales, current president, CEO and chairman. In addition, effective upon the closing of the transactions, five current Supervalu directors will resign. Immediately following the closing of the transactions, the size of the board will be reduced to seven members from the current ten members. This seven-member board will consist of five current Supervalu directors and two board members designated by Symphony Investors, one of whom is Robert Miller, current president and CEO of Albertson’s LLC, who will serve as non-executive chairman of the board. Following the completion of a search process, the board will be increased to a size of 11 directors, with the four new directors to consist of Sam Duncan, an additional director appointed by Symphony Investors, and two additional independent board members to be selected by the initial seven directors.

Following the sale, Supervalu will consist of the independent business, a food wholesaler that serves 1,950 stores across the country; Save-A-Lot, the largest hard discount grocery chain in the United States, with approximately 1,300 stores; and retail food banners Cub, Farm Fresh, Shoppers, Shop ‘n Save and Hornbacher’s. As such, Supervalu is expected to generate annual revenues in excess of $17 billion. Key elements of the company’s go-forward business plan, Supervalu said, include continued focus on right-sizing operations and maximizing efficiencies across the company. Supervalu and AB Acquisition also will enter into a Transition Services Agreement pursuant to which the parties will provide each other with various services.

In connection with the Transactions, Supervalu said it has negotiated a new and fully underwritten $900 million asset based revolving credit facility led by Wells Fargo and a $1.5 billion term loan secured by a portion of the company’s real estate and an equity pledge of Moran Foods LLC (the parent entity of the Save-A-Lot business), led by Goldman Sachs Bank USA, Credit Suisse, Morgan Stanley, Bank of America Merrill Lynch and Barclays. The proceeds of these financings will be used to replace the existing $1.65 billion asset-based revolving credit facility, the existing $846 million term loan, and to call and refinance $490 million of 7.5 percent bonds scheduled to mature in November 2014.

“The transactions announced today represent the successful culmination of the in-depth strategic review process we commenced this past summer,” Sales said. “Following the Sale, Supervalu will have three strong market-leading business units with more consistent cash flows and improved EBITDA growth potential. Symphony Investors tender offer provides our shareholders with an attractive premium to recent trading values of our shares and they will acquire an equity stake in a newly refocused Supervalu with solid long-term prospects. At the same time, the stores being sold to AB Acquisition are complementary to Albertson’s LLC’s current operations, which are focused primarily on traditional retail grocery.”

Duncan said he is excited at the prospect of leading Supervalu.

“The company has very solid market positions and I see great potential in our ability to successfully build on each of these three core businesses,” he said. “The independent business is one of the largest food wholesalers in the United States, serving many of the country’s most successful independent operators. Save-A-Lot is the nation’s largest hard discount grocer, providing the company an important presence in this fast-growing segment of food retail. Additionally, the company’s streamlined retail operation consists of five strong regional banners. I’m looking forward to working with Supervalu’s team members to quickly and effectively improve the company’s business.”