In a deal where real estate values are a critical component, Cerberus Capital Management will gain controlling interest in Supervalu and also agreed to acquire Albertsons, Acme, Jewel-Osco, Shaw’s and Star Market stores and related Osco and Sav-On in-store pharmacies from the Eden Prairie, MN retailer/wholesaler for $3.3 billion. That new affiliate – AB Acquisition LLC also includes minority equity partners Kimco Realty Corporation, Klaff Realty LP, Lubert-Adler Partners and Schottenstein Real Estate Group.
Specifically, the store sale will consist of the acquisition by AB Acquisition of the stock of New Albertsons, Inc. (NAI), a wholly-owned subsidiary of Supervalu, which owns the banners originally acquired from Albertsons in 2006, for $100 million in cash. NAI will be sold to AB Acquisition subject to approximately $3.2 billion in debt, which will be retained by NAI. As part of the transaction, which includes 877 units, AB Acquisition-owned Albertsons LLC will reunite its Albertsons stores with the acquired NAI Albertsons stores. Albertson LLC, based in Boise,ID, currently operates 192 stores in Texas, Florida, Louisiana, New Mexico, Arkansas, Arizona andColorado.
As for core Supervalu, a newly-formed entity owned by a Cerberus-led investor consortium (Symphony Investors) will conduct a tender offer for up to 30 percent of Supervalu’s outstanding common stock at a purchase price of $4.00 per share in cash The tender offer represents a 50 percent premium to Supervalu’s 30-day average closing share price as of January 9, 2013, and provides Supervalu’s shareholders with the opportunity to maintain an equity stake in Supervalu moving forward.
The two-part transaction was announced on January 10 and is expected to close in early March.
In the event that Symphony Investors does not obtain at least 19.9 percent of the outstanding shares of Supervalu common stock pursuant to the tender offer, Supervalu will be obligated to issue new shares of common stock to Symphony Investors at the tender offer price such that after giving effect to the tender offer and the potential issuance of new shares, Symphony Investors would own a number of shares representing at least 19.9 percent of Supervalu’s outstanding common stock prior to the issuance.
Moreover, Supervalu also will have the option to issue to Symphony Investors additional new shares of Supervalu common stock at the tender offer price (“optional issuance”), subject to: an overall cap of $250 million on Symphony Investors purchase of common stock pursuant to the tender offer, the issuance and the optional issuance (“tender offer process”); and a total issuance of primary common shares of not more than 19.9 percent.
The transactions described above are subject to customary closing conditions, including the fully underwritten refinancing of certain Supervalu debt as described below. The closing of the sale is also based 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, Supervalu stated. Closing of the deal and the tender offer process is expected to occur in early March. The proposed acquisition is not subject to shareholder approval.
Following the closing of the transactions, Supervalu will be headed by grocery retail veteran Sam Duncan as president and CEO, replacing current president, chief executive officer and chairman Wayne Sales.
In addition, effective upon the closing of the transactions, five current Supervalu directors will resign. Immediately following the closing of the transactions, the size of the board will be reduced to seven members from the current ten members. This seven member board will consist of five current Supervalu directors and two board members designated by Symphony Investors, one of whom is industry veteran Robert Miller, current president and CEO of Albertsons LLC, who will also serve as non-executive chairman of the board at theEden Prairie,MNfirm. Following the completion of a search process, the board will be increased to a size of 11 directors, with the four new directors to consist of Sam Duncan, an additional director appointed by Symphony Investors and two additional independent board members to be selected by the initial seven directors.
Following the sale, Supervalu will consist of the following divisions: independent business, a leading food wholesaler which serves 1,950 stores across the country; Save-A-Lot, the large extreme value grocery chain with approximately 1,300 stores; and Supervalu’s regional retail food banners Cub, Farm Fresh, Shoppers, Shop ‘n Save and Hornbacher’s. As such, the company noted, Supervalu is expected to generate annual revenues in excess of $17 billion. Key elements of Supervalu’s go-forward business plan include continued focus on right-sizing operations and maximizing efficiencies across the company.
Supervalu and AB Acquisition also will enter into a Transition Services Agreement pursuant to which the parties will provide each other with various services.
On the financial side of the business, 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 of Moran Foods, LLC (the parent entity of the Save-A-Lot business) 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 commenting on the definitive agreement, Sales said: “The transactions announced today represent the successful culmination of the in-depth strategic review process we commenced this past summer. Following theSale, Supervalu will have three strong, market-leading business units with more consistent cash flows and improved EBITDA growth potential. Symphony Investors’ tender offer provides our shareholders with an attractive premium to recent trading values of our shares and they will acquire an equity stake in a newly refocused Supervalu with solid long-term prospects. At the same time, the stores being sold to AB Acquisition are complementary to Albertsons LLC’s current operations, which are focused primarily on traditional retail grocery.”
Duncan said: “I am excited by the opportunity to lead Supervalu. The company has very solid market positions and I see great potential in our ability to successfully build on each of these three core businesses.”Duncan continued, “The independent business is one of the largest food wholesalers in the United States, serving many of the country’s most successful independent operators. Save-A-Lot is the nation’s largest hard discount grocer, providing the company 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.”
Miller noted: “As chairman of Supervalu’s reconstituted board, working closely with Sam Duncan and the Supervalu management team, we will focus on strengthening the company’s market leading positions and delivering compelling value to our 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.”
“We are pleased to be making this investment and look forward to helping build long-term value for all stakeholders,” said Lenard Tessler, co-head of Global Private Equity and senior managing director at Cerberus. “We believe these transactions will create stronger, more competitive businesses.”
Goldman Sachs & Co. and Greenhill & Co., LLC served as financial advisors to Supervalu in connection with the company’s strategic review and the transactions. Wachtell, Lipton, Rosen & Katz served as Supervalu’s legal counsel. Cerberus was advised by Lazard along with Barclays. Barclays will also serve as dealer manager for the tender offer. Schulte Roth & Zabel LLP served as Cerberus’s legal counsel.