Proxy Battle For Control Of SVU Board To Be Decided August 16

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The proxy battle between Supervalu and minority holder Blackwells Capital for control of the wholesaler/retailer’s board will be decided by the company’s shareholders during the shareholders meeting scheduled for August 16 at Supervalu’s headquarters in Eden Prairie, MN.

For more than a year, New York City-based Blackwells has sought board control of Supervalu through its six proposed directors, citing SVU’s “misguided and unfocused strategy” which has yielded poor results and disappointing returns to shareholders.

Not surprisingly, Supervalu disputes those contentions and has continually noted that Blackwell’s effort is an attempt to gain control of the company without paying a premium to all shareholders (according to Supervalu, based on Blackwells’ definitive proxy statement filed on June 29, 2018, Blackwells holds 5.3 percent of the company’s outstanding shares outright). Taking into account Blackwells’ net short call position, it has a net long position of 3.9 percent of the company’s outstanding shares. In addition, Blackwells holds a net long position of put options – which pay out more as the stock price declines- representing 4.2 percent of Supervalu’s outstanding shares.

Supervalu also believes that its current nine-member board is highly qualified and in a letter to shareholders on July 9 outlined its ongoing strategic plan.

Below is an edited version of the letter that chairman Donald Chappel and CEO Mark Gross sent to shareholders.

Dear Fellow Stockholder:

Your board of directors and management team are committed to enhancing the value of your investment in Supervalu, Inc. and we continue to proactively develop and pursue opportunities to achieve that goal. We have been taking decisive actions to create stockholder value by rapidly and strategically transforming Supervalu into the wholesale supplier of choice in the U.S. grocery industry – and we continue to make meaningful progress.

At Supervalu’s upcoming Annual Meeting of Stockholders on August 16, 2018, you will be asked to make important decisions regarding the composition of the company’s board and the future structure of your company, which we believe will impact the value of your investment. Blackwells Capital, a New York-based alternative investment firm, is trying to seize control of your board by proposing to replace six of nine directors. Blackwells’ attempt to seize control of your company, without paying a premium to all stockholders, is highly disproportionate to its actual ownership stake in Supervalu.

Any claim Blackwells could make to act on behalf of Supervalu’s stockholders is belied by the fact that, through short sales of call options and the purchase of put options, Blackwells’ exposure to the company is substantially less than it represents. In fact, while Blackwells claims that it has a 7.7 percent ownership interest in Supervalu, analysis of the detailed information it has provided in its filings shows that, taking into account its various options contracts, Blackwells’ exposure to the company’s shares is materially lower than 7.7 percent.

We believe that there is significant risk to the important progress the company is making in executing its ongoing strategic plan by supporting Blackwells and its proposal to replace the majority of your board.

Your vote is very important. We encourage you to protect the value of your investment in Supervalu and votefor all” of the company’s director candidates listed on the enclosed white proxy card.

Supervalu has been in business for more than 140 years, with our roots in the wholesale grocery industry. Over the years, our business evolved to include grocery retail and other supply chain services. Just as the company has always sought out new ways to improve efficiency and better serve customers, we have also remained committed to identifying and executing on the highest potential market opportunities and taking actions that would drive value for all stockholders.

Long before Blackwells first contacted members of the Supervalu management team, and before Blackwells purchased a single share of Supervalu, your board had taken bold steps to fundamentally shift the direction of the company and return Supervalu to its roots by becoming the wholesale supplier of choice for grocery retailers across the U.S.

Your board laid the foundation for Supervalu’s transformation by intentionally recruiting and hiring a wholesale industry leader with a strong track record of delivering growth, Mark Gross, to serve as president and chief executive officer in February 2016. Under Mr. Gross’ leadership, the company has taken major steps to position Supervalu as the grocery wholesale supplier of choice, while also ensuring that certain of the company’s well-positioned retail assets are strategically used to add value to the overall business.  These steps began long before Blackwells came on the scene and include:

-Completing the Sale of Save-A-Lot. As an important early step in the strategic transformation of the business, your board and management team pursued and completed the sale of the company’s Save-A-Lot business in December 2016. This sale enabled Supervalu to utilize the $1.3 billion in proceeds to significantly reduce the company’s debt and create flexibility to execute transformation initiatives and pursue important strategic acquisitions and growth opportunities.

-Executing a Dramatic Turnaround of the Wholesale Business. Building on an annual sales base of approximately $8 billion, the company added $5 billion in sales on a run-rate basis to the Wholesale business in just two years – a growth rate of over 60 percent. We were able to accomplish such significant growth and increase Wholesale to 80 percent of total company sales from just 44percent two years ago, through a combination of organic business growth and by completing the acquisitions of Unified Grocers (“Unified”) in June 2017 and Associated Grocers of Florida (“AG Florida”) in December 2017. These two acquisitions significantly expanded our customer base, geographic footprint, product offerings and expertise. In fact,

we are currently executing the integration of Unified and AG Florida and have raised our 3-year synergy estimates by $20 million so that we now expect to achieve annual cost savings of at least $96 million.

-Unlocking the value of our owned real-estate portfolio. We monetized a significant portion of our owned real-estate portfolio through the sale and leaseback of eight distribution centers, totaling nearly six million square feet of space. This transaction will generate net proceeds of approximately $445 million, which we are using to further reduce outstanding debt. We continue to work with a nationally renowned real estate advisory firm to assess the remaining approximately 13 million square feet of owned real-estate, while ensuring we maintain strategic and operational flexibility.

-Reducing our retail footprint. In March 2018, we completed the sale of a majority of our Farm Fresh retail stores and pharmacy assets for a total of $53 million and sold our minority stake in a multi-store Cub Foods LLC that generated proceeds of $14 million. In April 2018, we announced that we are pursuing the sale of our corporately owned Shop ‘n Save and Shop ‘n Save East retail operations in order to further optimize our asset base and provide us flexibility to invest capital in select, innovative store remodels and in-store merchandising initiatives within certain of our stronger retail assets.

-Pursuing new initiatives. Consistent with our focus on growing our Wholesale business, we also pursued new initiatives designed to position us for success in our rapidly evolving industry. For example, our recent entry into a multi-year reseller agreement with Instacart creates a new professional services offering and expands our digital capabilities by allowing Supervalu to offer the benefits of online shopping and delivery services to more than 3,000 independent retail stores supplied by Supervalu, as well as other retailers across the U.S. in the over 240 metro areas where Instacart operates.

These actions are translating into measurable results. Adjusted EBITDA in our wholesale segment grew approximately 19 percent between fiscal 2016 and fiscal 2018.   Further, as a result of our prudent and targeted investments in stronger retail assets, identical store sales for our three retail banners in continuing operations have sequentially improved every quarter over the past four reported quarters.

We have taken decisive actions at both the Wholesale and Retail levels to enhance our competitive position within the changing food industry, strengthen our balance sheet and most importantly, to position the company to deliver long-term value to all stockholders.

Our wholesale and retail leadership teams remain dedicated to managing the successful execution of our go-forward, four strategic pillar strategy: grow our core Wholesale business, optimize our asset base, de-lever our balance sheet and pursue strategic and opportunistic mergers and acquisitions.

To further support our strategic transformation, we are proposing to reorganize Supervalu’s corporate structure (which we refer to in our proxy statement as the “Holding company Proposal”). Our proposed holding company reorganization, for which we are seeing stockholder support at the upcoming annual meeting, is expected to:

-Organize and further segregate our wholesale and retail operations in an operationally efficient and strategic manner, including to separate the wholesale and retail operations held by Supervalu INC., our current public company entity;

-Facilitate our previously announced strategic transformation plan to sell certain retail assets to third parties;

-Better segregate the liabilities of the company into their respective business segments;

-Increase our strategic, business and financial flexibility; and

-Enable us to achieve our strategic transformation plan in a tax efficient manner that may facilitate the ability to utilize a material portion of Supervalu’s capital loss carryforward, which could generate approximately $300 million of cash tax benefits for the company over the next approximately 15 years.

We believe that the company’s directors – Donald R. Chappel, Irwin S. Cohen, Philip L. Francis, Mark Gross, Eric G. Johnson, Mathew M. Pendo, Francesca Ruiz De Luzuriaga, Frank A. Savage and Mary A. Winston – have played critical roles in launching and overseeing the successful execution of Supervalu’s transformation.

Supervalu has a diverse and independent board that benefits from a breadth of skills and expertise to position the company for success. Eight of our nine directors are independent, and all of our directors are proven leaders with decades of experience spanning the wholesale, retail, finance, accounting and food industries, in addition to public company leadership and board experience.

We have made board refreshment a priority, and as a result of this effort, we have appointed new directors who are playing an integral role in overseeing Supervalu’s transformation. Two of our directors have joined the board in the past two years, six of our nine directors have served on the board for less than five years and a new independent chairman was appointed in July 2017.

Your board has been – and will continue to be – a significant agent of change to improve Supervalu’s performance and deliver enhanced value to our stockholders. With a mix of new and tenured directors, your board collectively brings the skills, expertise and knowledge of Supervalu and our industry needed to oversee execution of the company’s operational and strategic plans.

Your board and management team are committed to delivering value for all stockholders and remain focused on the continued execution of a transformation strategy that is demonstrating strong momentum and is already delivering measurable results.

We appreciate your support.

Sincerely,

Donald R. Chappel

Chairman of the board

Mark Gross

President and Chief Executive Officer