Reports are flying that private equity group Cerberus Capital Management will acquire Supervalu, the US’s third-largest grocery chain.
The Eden Prairie, MN-based supermarket owns banners Albertson’s, Jewel-Osco, Shaw’s Markets, and Save-A-Lot among others. Cerberus is already an investor in the Albertson’s chain, having purchased some 600 stores back in 2006. Cerberus would acquire the remainder according to other reports, and then become a major shareholder of the publicly-traded Supervalu. The supermarket had tried to avoid a loss of majority control in earlier discussions meant to secure additional financing, but its struggles have been public and lengthy, making financing as elusive as profitability: sales have fallen for the last three years. Current estimates are they will decline a further 4.5% during fiscal 2013 to $34.5bn.
But the company’s biggest liability is its $6bn in debt (6x its market value).
The reasons for these struggles are familiar to those of us who watch the grocery channel: Walmart and Target have grabbed the low-end consumer, who otherwise might have shopped at Save-A-Lot. Its 1,200 stores are the chain’s biggest banner. At the other end, Whole Foods has eroded market share among more well-heeled customers, the single biggest factor in A&P’s demise even after it spent big for glitzy store makeovers.
Other investors have sniffed around the chain, and the company has explored a variety of options when financing eluded it, but it now looks as though surrender to Cerberus is unavoidable. Cerberus was previously in the news following its public announcement it would its lucrative gun division, the Freedom Group, whose Bushmaster-brand semi-automatic rifle was used to murder 20 students and six adults in Newtown, CT December 14, 2012. Several prominent pension funds had threatened to pull up to $800MM from the $20bn investment group unless it divested its gun-making properties.