Noddle: Albertsons Deal Will Have "Great...Ramifications" for Supervalu

MINNEAPOLIS -- News of the closing of the Albertsons deal was the prime topic of breakfast conversations yesterday morning as the FMI Midwinter Executive Conference kicked off in Scottsdale, Ariz. The fact that Jeff Noddle, Supervalu's chairman and c.e.o., and current FMI chairman, was at the meeting instead of huddled in a war room in Minneapolis was an unending source of amazement for many.

If all goes as expected, the investment-banker-backed bid led by Supervalu to buy Albertsons, Inc. for $9.7 billion in cash and stock will thrust the retailer/wholesaler into a whole new ballgame as the nation's second-largest grocer.

On the podium to introduce an expert speaker who would discuss the evils of lack of sleep, Noddle addressed his c-level executive colleagues by proclaiming himself "the poster child for sleep deprivation," and then went on to explain how Supervalu and its partners would divvy up the Albertsons store base.

While CVS would gain the pharmacy operation -- which consists of 700 standalone Sav-on and Osco drug stores, plus a California distribution center -- acquisition partner Cerberus Group would get the stores in Florida, Texas, Arizona, Northern California, and the Rockies region. Supervalu would scoop up everything else, including Shaw's, Acme, Jewel-Osco, and Albertsons units in Southern California, the Intermountain, and Pacific Northwest regions.

Then, making full use of understatement, Noddle called the historic deal, which he admitted took four or five months to close, "pretty unique." He said he hoped to be able to pull together the best of both companies, including talent, and added that the acquisition would have "lots of implications and ramifications for his company."

Although it remains to be seen how the deal will ultimately shake out on a market-by-market basis, Denver-area retail real estate experts were quoted as saying that Albertsons' buyers may sell many of the chain's local stores, since it has a mixed bag of locations in the Colorado corridor, opting to keep strong-performing units and discarding other, less desirable locations.

"We will realize a sizeable increase in our retail footprint and supply chain network, strengthening our ability to effectively compete in today's challenging grocery industry," said Noddle, who will keep his title as the leader of the combined company, in a statement released just hours before the opening of the FMI event. "The combination of operations will create a premier food retail powerhouse of 2,656 stores from coast to coast, tripling the size of our current retail operations. By adding prestigious supermarket nameplates across the country, each with strong market presence in their respective regions, we will have the critical mass and footprint to leverage the combined operations to become a more profitable business."

The new store count takes into consideration the divestiture of some of Supervalu's holdings, including the sale of 26 Chicago-area Cub stores, and is expected to net combined sales of $44 billion.

Supervalu's total buyout consideration is approximately $12.4 billion in stock and cash, and the assumption of approximately $6.1 billion of Albertsons debt. Following the transaction, which is expected to close during summer 2006, approximately 65 percent of the new Supervalu will be held by its existing stockholders and approximately 35 percent will be held by Albertsons stockholders on a fully diluted basis reflecting options, awards, and other issues.

Despite Noddle's optimism, some analysts think Albertsons' heavy debt load presents a risky scenario in the face of Wal-Mart's continued expansion of its supercenter format stores. Debt-rating agencies warned that Supervalu can expect its debt to be downgraded to junk status, since the grocery company is taking on such a significant portion of Albertsons' debt, reported Reuters. ("Junk status" means investors won't buy Supervalu debt, and the company's borrowing costs likely will go up.)

Other analysts counter that the gamble could pay off handsomely for Supervalu, which can use its accelerated supply-chain efficiencies to cut costs and produce better-performing stores.

A number of other retailers in the audience at FMI were doubtless also mulling the implications for their own operations, with some practically licking their chops. Said a c.e.o. with a company in one of the affected markets, with a plan already in place to open about a half-dozen stores of his own, "Now we'll also see if we can get ahold of some of those Albertsons stores."
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