Supervalu Board Broke Deadlock Between UNFI, C&S To Sell Company
Last month, we wrote how the back-and-forth bidding between eventual winner UNFI and C&S helped drive the price of the Supervalu sale to what many analysts believed was a super-premium offer ($32.50 per share).
Now, after filing a recap with SEC describing the events leading up to the sale, we learned exactly how ferocious and competitive the bidding actually was.
With pressure to improve earnings and increase its stock price and an additional distraction of how to fend off New York investment firm Blackwells Capital, which sought six seats on its board, Supervalu began a more intensive “exploration” process early in 2018. Actually, informal discussions between UNFI and two other wholesalers Company “A” (thought to be C&S) and Company “B” began two years ago, shortly after Gross became CEO of the troubled Eden Prairie, MN-based wholesaler/retailer.
When the actual negotiating process began in January 2018, wholesaler “B” had already dropped out and C&S (with the aid of a financial partner) made an initial offer of $23 per share (Supervalu was trading at approximately $20 a share and had a 1-for-7 reverse stock split in August 2017).
In March, Gross contacted UNFI chief executive Steve Spinner and asked him to consider making an offer for Supervalu. Spinner expressed interest but any UNFI bid would not include SVU’s corporately-owned retail stores, and other pieces linked to its retail operations including systems and software and pension liabilities.
In April, Company “A” (C&S) increased its offer to $27 per share. UNFI, prompted by Gross who expressed urgency to consider a counter-offer, which was made at only $21 per share (excluding retail and affiliated operations).
By June, with Blackwells increasing pressure to revamp the boards, Company “A” (C&S) reaffirmed its $27 bid and including a letter from an investment bank that it could arrange the needed debt financing (C&S is a private company; UNFI is publicly-traded). Supervalu which had concerns from the outset that Company “A” (C&S) whether could afford such a deal, rejected that offer three weeks later.
UNFI, obviously sensing the competitive threat from C&S, upped its bid to $27 an offer, contingent on Supervalu’s disposal of its more than 110 corporately-owned supermarkets. UNFI also sought a four-week period of exclusivity where no discussions would be held with a third party (C&S). Supervalu rejected the premise of selling corporately owned stores.
Company “A” (C&S) increased its offer to $27.25 per share, but Supervalu and its advisers still were not comfortable with the financing package and were also concerned about potential antitrust issues.
On July 17, Company “A” (C&S) informed Supervalu that it wanted to negotiate a final agreement and wanted to a announce a deal within 10 days. Six days later, Spinner and UNFI raised their bid to $29.50 per share.
The next day Supervalu asked both parties to submit their best and final proposals by the next morning and said that it would decide the next day (July 25) who would acquire the company with an announcement to be made on July 26. Those last two days coincided with Supervalu’s large National Expo in neighboring St. Paul which most of the company’s retail customers and executives would be attending.
Company “A” (C&S) upped its offer to $32.50 per share of July 25. Supervalu had to wait 12 more hours to receive UNFI’s best and final offer, which was also $32.50, with the caveat that the bid would expire soon if it were not accepted.
As Supervalu’s board met during the evening of July 25 to decide the fate of the organization, an adviser for Company “A” (C&S) called and was asked if it intended to improve its offer. The adviser indicated that $32.50 would indeed be its best and final offer.
Now, it was up to Supervalu’s nine-person board to decide the winner. According to the filing, the board considered the timing and closing certainty for each party. They concluded that a deal with Company “A” (C&S) could take longer than one with UNFI and that the offer from UNFI would be yield a higher present value.
Several hours later, the Supervalu board (with input from its outside legal and financial teams) unanimously selected UNFI’s $1.26 billion ($2.9 billion including debt) offer as the winning bid.
Now the heavy lifting begins as Supervalu has accelerated its efforts to sell or close its retail stores and UNFI attempts to utilize the advantages of combining the resources of a large organics/natural/specialty food distributor with an even larger full-service grocery wholesaler all under the umbrella of a heavy debt load.