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Restructured Cerberus Deal For Supervalu Still On Track

Despite some recent setbacks, the Cerberus-Supervalu potential marriage is still very much on, several Wall Street sources have told me.

While we had heard predictions that a deal between the struggling retailer/wholesaler and the well-endowed New York venture capital firm might happen before Thanksgiving, it now looks like it will be early January before there’s a possible announcement. And we’ve learned that such a deal will take a slightly different form than originally anticipated.

Instead of Cerberus acquiring all the assets of the Eden Prairie, MN organization, it now appears (according to several sources) that Cerberus will acquire the Albertsons stores in its Southern California (226 units in California and Nevada) and Intermountain divisions (187 units in Oregon, Washington, Wyoming, Montana, Utah, North Dakota and Idaho). Those units would then be rolled into Albertsons LLC, which Cerberus has controlled since the 2006 sell-off of the entire Albertsons organization by then CEO Larry “The Milkman” Johnston.

Boise, ID (the home of the original Albertsons) will remain headquarters for Albertsons Markets LLC. We’re told that Bob Miller, CEO, will become chairman of the new organization and Bob Butler, currently executive VP-operations, will assume the chief executive post. If a deal for Supervalu’s Albertsons banner is concluded, Albertson Markets LLC will add 213 units to its current base of 192 stores that are located in Texas, Arizona, Florida, New Mexico, Louisiana, Arkansas and Colorado.

The change in direction is a result of how Cerberus now plans to deal with the remainder of Supervalu. We’re told that instead of a total asset sale, Cerberus would now own a substantial, but minority stake in SVU (think 25-40 percent).

The common link in all of this is Bob Miller, who originally worked for Joe Albertson in the 1960s and subsequently held senior management positions with Fred Meyer (with Ron Burkle’s Yucaipa Cos.), Wild Oats and Rite Aid, before returning to head the Albertsons bannered stores that Supervalu did not acquire in that historic 2006 deal.

We’re told that Miller would likely become chairman of Supervalu (therefore having a Cerberus link in both organizations). Sam Duncan, who like Bob Butler, worked with Miller at Fred Meyer, would become CEO of Supervalu.

If such a deal does occur, Cerberus likely will get at least three SVU board seats, too. While this structure is different than the reported original plan, it still would give Cerberus the control it needs to make future moves.

And why did the original “total asset” acquisition plan fail?

We were told that Cerberus wanted to borrow money for the whole deal without putting up any of its own capital.

As one of our Wall Street insiders said: “Yes, even today with money being ‘cheap’ and a highly successful multi-billion dollar investment firm ready to acquire a troubled company – albeit one with many fixed assets – the banks made it clear that you must have some your own skin in the game. Apparently, Cerberus didn’t want to even put up the ante.”

So, if a deal does occur, priority number one is reportedly selling Acme, Shaw’s and Jewel. The potential Jewel play is somewhat surprising news, given that banner’s still dominant position in Chicago. However, one source told us to look past the Jewel’s past reputation and focus on current and future events.

“The possible sale of Jewel by Supervalu or Cerberus shouldn’t be that hard to believe. The deep dive may not have started as early as at Shaw’s or Acme, but for the past several years, overall sales have diminished sharply and ID sales continue to be awful. The Jewel situation is a microcosm of what’s been wrong with Supervalu for the past five years – aging, smaller stores, no significant cap-ex to improve infrastructure or real estate, vanilla marketing, out of touch pricing – although that has improved somewhat over the past several months – and poor corporate leadership. And then when you consider the new competition entering Chicagoland – Wal-Mart, Meijer, Roundy’s, etc. – it might be time to consider getting out of the market,” said our industry insider.

It would seem logical that Supervalu/Cerberus would like to find one buyer for all three troubled banners, but that might not be so easy, especially if the potential new organization is looking for a quick dump.

Viewing those individual banners, Kroger – which has the capital do such a deal, is already unionized and has a void in its nearly national grid in Chicago- would be a logical contender for Jewel.

As for Shaw’s and Acme, perhaps Ron Burkle could cobble together a deal on the cheap for those distressed properties, but even Yucaipa would have store overlap problems in parts of New Jersey, Pennsylvania and Delaware. Of course, there’s always the auction or block sales process, which would yield fewer stores being sold, but likely a higher premium to be gained on a per unit basis.

We’re also told that, while Eden Prairie will still be Supervalu’s headquarters, there will be a lot less emphasis on “centralization.” Miller, one of the toughest and smartest supermarket executives of the past 25 years, knows that giving increased power and control back to the divisions will only make them stronger and potentially more viable a for sale down the road.

However, in my opinion, while reverting back to a decentralized mode is an excellent idea, you’ve got to wonder if too much damage has already been done for a successful resurrection.

As for Save-a-Lot, two of our sources told us that at this point (and contrary to other published reports), the extreme discount division is not for sale immediately, but – at the right price – could be moved.

That leaves Supervalu’s independent wholesale unit and its vast distribution and logistics network. I’m told that both of those pieces are running fine and we should expect the status quo to continue.

So, in essence, if our sources are correct, Supervalu will revert back to nearly the same model it had before its disastrous decision to overpay for the “crown jewels of Albertsons.”

What have you wrought Jeff Noddle?