Albertson's May Not Find a Suitor: Bear Stearns

Boise, Idaho -- Bear Stearns downgraded Albertson's Inc. to "underperform" from "peer perform," but on what's its retail analysts consider the chain's dim prospects of finding a buyer that would purchase the chain outright.

"We continue to assign a low probability that a buyer (or group of buyers) will emerge to purchase the entire grocery store company, consistent with our original assessment on September 6th," said analyst Robert Summers in a note. "In our view, a strategic buyer appears unlikely as long as we have trouble seeing an adequate return scenario to ultimately entice a financial buyer."

"In our opinion, Albertson's premium valuation already factors in the likelihood of a transaction. If a deal fails to materialize, which we believe is the most likely outcome, the valuation should immediately return to pre-announcement levels. We believe this creates an unattractive tradeoff for investors."

Bear Stearns predicted that the most likely outcome would be for the retailer to jettison non-core assets, and concentrate instead on its stronger markets, "consistent with management's mantra. In our opinion, the stock would react negatively to this outcome -- despite the potential long-term strategic benefits -- given the embedded takeout premium."

The Bear Stearns analyst said he would expect Albertson's management to reveal a decision about its search for strategic alternatives by the end of November.
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