Cerberus to Buy Parts of Supervalu - Analyst Blog

By Zacks | January 08, 2013 AAA

Rumor has it that leading grocery chain Supervalu Inc. (SVU) has finally found a potential buyer in private equity firm Cerberus Capital Management LP. According to The Wall Street Journal, Cerberus has agreed to buy parts of the assets of the grocery chain for $500 million in equity as well as a major stake in the remaining part.

Supervalu is also planning to sell its discount food stores Save-A-Lot separately as it has been reporting declining sales for several consecutive years.

Moreover, Cerberus is reported to have been willing to buy the whole of the company for $900 million. However, some of the financing banks objected to the valuation.

Supervalu had been looking for broad-based strategic alternatives that included the sale or disposition of all or a part of the company in order to increase shareholder's value. People close to the company said that with the Cerberus deal nearing its final stage, the company had finally gone ahead with its strategic alternatives.

Supervalu broke even on a per share basis in the second quarter of fiscal 2013, lagging the Zacks Consensus Estimate of 12 cents and the year-ago quarter's earnings of 28 cents a share. The weak results were due to disappointing sales in all the segments during the quarter.

Moreover, the company reported negative identical store sales successively for the past four years. The trend has continued in the first half of fiscal 2013 as well.

Now, in order to combat four successive years of negative identical store sales and re-position the company for growth, Supervalu is gearing up to expand its private brand portfolio and step up cost-reduction initiatives that are expected to reduce administrative and operational expense by an additional $250 million by fiscal 2014.

This is in addition to the company's current target of curtailing $75.0 million in expenses for fiscal 2013. As a part of this strategy, in September 2012 Supervalu closed down 60 underperforming stores, including 27 Albertsons and 22 Save-A-Lots. The closures are expected to generate $80 million-$90 million in savings over 3 years.

Supervalu, which competes with The Kroger Company (KR), currently holds a Zacks #4 Rank (short-term Sell rating).

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