Last week in a much anticipated move, Cerberus Capital Management acquired 877 supermarkets from Supervalu for $100 million in cash and the assumption of $3.2 billion in debt. Also part of the deal, a Cerberus-led investor consortium will provide the remaining Supervalu business an influx with the purchase of up to 30% of Supervalu stock at a purchase price of $4 per share.
Following the transaction, Supervalu will be a $17 billion business comprised mostly of its distribution business, which will represent 47% of revenues, Save-A-Lot (25%) and 191 regional supermarkets (28%).
If the pharmacy mix in Supervalu's remaining pharmacy business remains at 8%, then the chain will fall from No. 13 on DSN's Top 50 Pharmacy Power Players to No. 34 with some $340 million in annual pharmacy revenues.
But Supervalu's remaining supermarket business may become a 191-store chain on the rebound. "Earlier this year we launched what we call value transportation with a huge price investment to get our prices on strategy and coupled with that was a massive marking advertising and communications program both internally and in the stores and externally to our billboards and marketing efforts," current Supervalu president and CEO Wayne Sales told analysts. "When you look at banners such as Cub, we aggressively [talked] about not only our price versus key competitors but also other parts of the value proposition that we bring to our customers in addition to our price position," he said.
And behind that initial marketing campaign Supervalu will be able to invest more per capita against the smaller store base. "The remaining banners are smaller, they are more regional and they require less investment in price," Sales said. "So we have again less to distract us from because of the divested banners going away and we can put absolute focus on the 191 retail stores that we have left."
Meanwhile, Albertsons LLC, ranked No. 29 last year on the DSN's Top 50 Pharmacy Power Players would leapfrog Supervalu to that No. 13 spot with more than $2 billion in estimated full-year pharmacy sales through the New Albertsons.
Overall, the transaction may be good news for competitors like Kroger, Safeway and other food retailers, wrote Credit Suisse research analyst Ed Kelly. "Cerberus closed or sold over half of the Albertson’s stores it acquired in 2006. A similar scenario here would clearly be good for overlapping competitors.
Other analysts are speculating that new owner Cerberus will jettison some of its new banners such as Jewel-Osco, possibly offering Kroger entree into the Chicagoland market.
At the helm of the newly formed Supervalu will be two seasoned retail turnaround veterans. Former OfficeMax chief Sam Duncan has been credited with revitalizing a sluggish business supply business in 2009, bringing the company's per share price from $4.80 to $16.80 in the span of a year. He did the same previously at Shopko — the company’s stock rose to some $22 a share, up from $13 a share.
And Robert Miller, who will be non-executive chairman of the new Supervalu, may be qualified to write a case history on successful turnarounds. Miller, who got his first start in retailing with Albertsons some 50 years ago, took over at Rite Aid and helped engineer the drug store retailer's first turnaround between 1999 and 2005 with lieutenants Mary Sammons and John Standley.