Supervalu-Cerberus Deal Done; 1,100 Jobs Will Be Eliminated

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On March 21, Supervalu officially completed the sale of its Albertsons, Acme, Jewel-Osco, Shaw’s and Star Market stores to AB Acquisition LLC, an affiliate of a Cerberus Capital Management-led investor consortium for $3.3 billion. Simultaneously, with the close of the transaction, Robert Miller, president and chief executive officer of Albertsons LLC, also becomes Supervalu’s new non-executive chairman, replacing Wayne Sales, who has been executive chairman since August 2012. Sales will remain on the board as a director along with four other current board members: Donald Chappel, Irwin Cohen, Philip Francis and Matthew Rubel.

The terms include $100 million in cash and the assumption of $3.2 billion in debt. As part of the transaction, Symphony Investors, an investor group led by Cerberus, also took a 21.2 percent stake in Supervalu through a tender offer and the purchase of new shares, making it Supervalu’s largest shareholder.

Supervalu said it transferred operations on March 21 and was “open for business on Friday as a more efficient wholesale and retail company with annual sales of approximately $17 billion.” It will continue to operate and license the Save-A-Lot limited assortment banner and five regional supermarket chains: Cub, Farm Fresh, Shoppers, Shop ‘n Save and Hornbacher’s.

“The successful completion of this transaction marks a significant milestone for Supervalu and our shareholders, customers and employees,” said Sam Duncan, Supervalu’s president and chief executive officer. “As we move forward, Supervalu will continue as one of the largest wholesale grocery providers in America serving nearly 2,000 independent retailers in 43 states; we plan to continue growing our hard discount Save-A-Lot format that includes over 1,300 stores nationwide; and we will operate five, strong regional retail banners.”

AB Acquisition will operate the banners it is acquiring from Supervalu under two separate divisions: New Albertsons Inc. (NAI), which will oversee Acme Markets in the Northeast, Jewel in the Midwest, and the Shaw’s/Star stores in New England, plus all pharmacy operations; and Albertsons LLC which will oversee its existing stores in the South, the Southwest and the Pacific Northwest while absorbing the Albertsons-banner stores in Southern California and the Intermountain West.

Besides Cerberus, based in New York, and Albertsons LLC, based in Boise, ID, the investor group includes: Kimco Realty Corp., New Hyde Park, NY; Klaff Realty LP, Chicago; Lubert-Adler Partners, Philadelphia; and Schottenstein Real Estate Group, Columbus, OH.

As previously agreed upon, five directors voluntarily resigned from Supervalu’s board: Ronald Daly, Susan Engel, Edwin “Skip” Gage, Steven Rogers and Kathi Seifert. Lenard Tessler, senior managing director at Cerberus, also was appointed to the Supervalu board.

Supervalu also said that it has closed on a $1 billion asset based revolving credit facility led by Wells Fargo, US Bank and Rabobank and a $1.5 billion term loan secured by a portion of the company’s real estate, equipment 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 financings replace a previous credit facility and other debt vehicles.

Shortly after the deal was consummated, Supervalu said it would cut an estimated 1,100 jobs in the wake of its sale of its largest retail chains. The reductions include both current positions and open jobs that will not be filled. The final dates for the affected employees vary.

“The decision to reduce our workforce, although difficult because of the impacts to our people, is the necessary next step in the rebuilding of our business,” said Duncan. “This move is an important part of our strategy to be more focused and efficient in our operations, including how we staff and support our three business units going forward.”

The company added that following the sale of its Albertsons, Jewel, Acme and Shaw’s/Star Market banners, “the remaining organization will require significantly fewer corporate and store support roles and functions, making it important that the company restructure its operations and expenses accordingly.”

The cuts affect almost all of the company’s offices and most departments within the organization. Supervalu said that, “in general,” store-level employees and employees of Save-A-Lot will not be affected. Employees whose positions are eliminated will be offered severance and outplacement services based on Supervalu’s eligibility guideline.

In the Mid-Atlantic region, sources told us that more than 20 people were riffed at Shoppers Food & Pharmacy and about 15 were let go at Farm Fresh. However, we are also told that some of those associates have been reassigned to new positions, primarily in store operations as the new organization is reinstalling department merchandisers in a company-wide effort to become more localized by allowing the divisions to have a greater voice in merchandising, pricing and item mix.

Supervalu also announced appointments to its executive team, including Janel Haugarth, who will remain with the company as executive VP and president of independent business and supply chain services. Haugarth was one of three senior long-term Supervalu executives who will benefit significantly (up to $3.65 million) if she leaves within three years of the completion of the new deal. Instead she will remain with the new Supervalu team for now as Duncan finalizes his leadership team. Haugarth will oversee the company’s wholesale and distribution business which is expected to account for nearly 50 percent of Supervalu’s annual revenues after the transaction closes. Supervalu’s independent business division is the primary grocery supplier to nearly 2,000 of the country’s most successful independent grocery retailers across 43 states. She also will lead supply chain services for the company which consists of 19 distribution centers across the country.