Supervalu Inks Long-awaited Deal With Cerberus

After months of spiraling financial performance, layoffs and overall uncertainty about its ultimate fate, Supervalu Inc. struck a deal valued at $3.3 billion to sell five of its operating divisions – including Albertsons, Acme, Jewel-Osco, Shaw's and Star Market stores, as well as Osco and Sav-on in-store pharmacies -- to an investor group led by Cerberus Capital Management.

Shares in Supervalu jumped 7.9 percent to $3.29 on the New York Stock Exchange by midday following the news of the deal.

The transaction, which is not subject to shareholder approval, includes 877 stores across all of the regional store banners, and is expected to close in the first calendar quarter of 2013.

Members of the investor group consist of AB Acquisition LLC, Kimco Realty Corp., Klaff Realty LP, Lubert-Adler Partners and Schottenstein Real Estate Group. AB Acquisition will acquire the stock of New Albertsons, Inc., a wholly-owned subsidiary of Supervalu, which owns the banners, for $100 million and $3.2 billion in debt. In addition to the sale, the Cerberus-led investor group, Symphony Investors, will conduct a tender offer for up to 30 percent of Supervalu’s outstanding common stock, at $4 per share in cash, which will provide Supervalu’s shareholders the opportunity to maintain an equity stake moving forward.

Following the sale, Supervalu will return to its roots with a three-pronged platform consisting of an Independent Business wholesale group which will serve 1,950 stores across the country; Save-A-Lot, the nation’s largest hard discount grocery chain with approximately 1,300 stores; and Supervalu’s corporate retail food banners Cub, Farm Fresh, Shoppers, Shop ’n Save and Hornbacher’s, all of which is collectively expected to generate annual revenues in excess of $17 billion.

Key elements of its future business plans include a continued focus on “right-sizing operations and maximizing efficiencies across the company.”

Wayne Sales, Supervalu’s current president, CEO and chairman, will be replaced by industry veteran Sam Duncan, who will steer the reengineered Supervalu as its new president and CEO when the deal closes, at which time the Supervalu board will shrink from 10 members to seven, with five current directors set to resign and a Cerberus-led investor consortium poised to choose two new directors. Robert Miller, current president and CEO of Albertsons LLC, will serve as non-executive chairman of the board.

Noting the company’s “very solid market positions,” Duncan said he sees “great potential” to build on each of the three core businesses.

“The Independent Business is one of the largest food wholesalers in the United States, serving many of the country’s most successful independent operators,” said Duncan. “Save-A-Lot is the nation’s largest hard discount grocer, providing…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.”

Meanwhile, the incoming chairman of Supervalu’s reconstituted board, Robert Miller, said he intends to work closely with Duncan and the company’s revised management team to strengthen market share positions and deliver “compelling value” shareholders. “Sam, whom I had the pleasure of working with at Fred Meyer, is an extremely talented retail executive, with more than 40 years of experience in retail, including turnarounds. He is well positioned to build upon the foundation Wayne Sales laid for improved performance. In addition, the acquisition by Symphony Investors of up to 30 percent of the company is a strong vote of confidence in the future of Supervalu. I share their strong belief in the company’s future potential.”


In connection with the transactions, Supervalu 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 from the parent entity of the Save-A-Lot business, Moran Foods, LLC. 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.

In the event that Symphony Investors does not obtain at least 19.9 percent of the outstanding shares of Supervalu common stock per the tender offer (as noted above), Supervalu will be obligated to issue new shares of common stock to Symphony Investors at the tender offer price and would own a number of shares representing at least the same percent of Supervalu’s outstanding common stock noted above prior to the issuance. Supervalu also will have the option to issue to Symphony Investors additional new shares of Supervalu common stock at the price subject to an overall cap of $250 million on Symphony Investors purchase of common stock.

The transactions are subject to customary closing conditions, including the fully underwritten refinancing of certain Supervalu debt. The closing of the sale is also conditioned on, among other things, the satisfaction of the conditions to the tender offer process, and the closing of Symphony Investors acquisition of Supervalu common stock pursuant to the tender offer Process is conditioned on, among other things, closing of the sale.

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