United Natural Foods Inc. (UNFI) and Supervalu have entered into a definitive agreement under which UNFI will acquire Supervalu for $32.50 per share in cash, or about $2.9 billion, including the assumption of outstanding debt and liabilities. The news comes the same day that Supervalu announced its Q1 2019 earnings.
Also, ushering in the end of an era, UNFI revealed that it plans “over time … to divest Supervalu retail assets in a thoughtful and economic manner.”
“This transaction accelerates UNFI’s ‘Build out the Store’ growth strategy by immediately enhancing our product range, equipping us to bring an attractive, comprehensive product portfolio to an expanded universe of customers,” said Steve Spinner, CEO and chairman of Providence, R.I.-based distributor. “Combining our leading position in natural and organic foods with Supervalu’s presence in fast-turning products makes us the partner of choice for a broader range of customers. Together, we can provide our ‘better for you’ products as well as other high-growth segments, improving customers’ competitive advantages in a dynamic marketplace. These benefits, plus our increased efficiency and productivity, will enable us to create value for our shareholders, enhance opportunities for our suppliers, provide a broader assortment for our customers and create new prospects for our associates over the long term.”
“The combination of UNFI and Supervalu provides a substantial premium and delivers certainty of value to our stockholders, meaningful benefits to our customers, expanded opportunities for our employees, and the ability for us and our vendors to efficiently serve a varied customer base,” said Mark Gross, CEO of Minneapolis-based Supervalu, who will be stepping away from the company as part of the deal. “We have been executing an ambitious strategic transformation for over two years. We believe that this transaction is the best and natural next step for our stockholders, customers and employees. I am very proud of the unwavering commitment and focus of our employees in driving our strategic transformation and serving our customers. I am confident that, together, Supervalu and UNFI will be well positioned to succeed – and to help our customers succeed – in today’s grocery landscape.”
According to the companies, the deal’s strategic and financial benefits are as follows:
Diversified customer base: The transaction will greatly expand UNFI’s customer base and exposure across channels, including those where demand for healthier products is rising and UNFI is underrepresented. It will also unlock new opportunities through a comprehensive product portfolio.
Greater cross-selling opportunities: UNFI will be able to deliver comprehensive and expanded offerings, among them the addition of high-growth perimeter categories such as meat and produce, to its natural and organic products.
Expanded market reach and scale: The broader geographic reach and greater scale of the combined entity is expected to boost efficiencies and effectiveness.
Enhanced technology, capacity and systems: The combined entity plans to leverage scalable systems to streamline its processes, more efficiently meet customer needs and reduce future capital expenditures.
Significant synergies: Through this combination, UNFI will be set to realize run-rate cost synergies of more than $175 million by year three.
Accelerated growth: After year one, the transaction is expected to be accretive to adjusted EPS in year one, with double-digit adjusted EPS growth after year one, excluding one-time costs.
Spinner will lead the combined entity, while Sean Griffin, UNFI’s COO, will head up the Supervalu integration efforts after the deal closes, leading an integration committee consisting of executives from both companies to implement best practices from each company and the delivery of important synergies, as well as a rapid and smooth integration.
UNFI said that it expects to finance the deal mainly with debt, and committed financing provided by Goldman Sachs.
Approved by the boards of directors of both companies and subject to antitrust approvals, Supervalu shareholder approval and other customary closing conditions, the transaction is expected to close in the fourth quarter of calendar year 2018.
UNFI distributes 110,000-plus products to more than 43,000 customer locations, including natural product superstores, independent grocery stores, conventional supermarket chains, ecommerce retailers, and foodservice customers.
One of the largest grocery wholesalers and retailers in the United States, Supervalu serves customers across the United States through a network of 3,437 stores comprising 3,323 wholesale primary stores operated by independent grocers serviced by the company’s food distribution business and 114 traditional retail grocery stores in continuing operations operated under three retail banners in three geographic regions. The company has about 23,000 employees.