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A Supervalu truck in the Supervalu distribution center in Hopkins.

Glen Stubbe, Star Tribune

Supervalu shares sink on report of deal glitch

  • Article by: MIKE HUGHLETT
  • Star Tribune
  • November 29, 2012 - 10:49 PM

Supervalu Inc.'s stock sunk almost 19 percent Thursday after a report that a possible deal for the embattled grocer is in jeopardy.

Bloomberg News reported that Cerberus Capital Management's pursuit of the supermarket giant has stalled because the private-equity firm has had trouble obtaining the funds for a leveraged buyout.

Potential lenders are balking because they're concerned over how Supervalu will manage the increased debt load as its revenue shrinks, Bloomberg reported, citing unnamed sources. Lenders also are pressing Cerberus to put more money into the deal than the firm is willing to.

Private equity companies like Cerberus usually pile debt onto the companies they acquire, and Eden Prairie-based Supervalu already has significant debt from its 2006 buyout of Albertsons. Cerberus and Supervalu, which owns Cub Foods, declined to comment to Bloomberg.

Late in the day, Supervalu put out a news release saying that its previously announced "review of strategic alternatives" -- which includes the sale of all or parts of the company -- is proceeding. "The company continues to be in active discussion with several parties," the release said.

Supervalu's stock closed at $2.28, down 52 cents. The company's shares, though battered over the past several years, were still trading around $5 in July when Supervalu announced particularly bad quarterly results along with the strategic review.

The stock promptly nose-dived to around $2.50 and fell further in following weeks. But it rallied to over $3 in October on media reports -- also based on unnamed sources -- of a possible Cerberus bid for Supervalu as a whole.

Without such a deal, Supervalu would be much more likely to sell off individual chains or businesses. That's what many stock analysts expected would be the most likely outcome, prior to speculation about Cerberus.

And even if Cerberus comes through with a successful offer for the whole company, it's likely to sell off chunks of Supervalu anyway to raise cash.

Cerberus is familiar with Supervalu. The New York-based private equity group and CVS Corp. teamed up with Supervalu in the $17.4 million purchase of Albertsons in 2006.

For $12.4 billion, Supervalu got 1,124 traditional grocery stores under several banners, including 569 Albertsons-branded outlets. Cerberus got 655 of Albertsons' underperforming stores and subsequently sold off more than 400.

Supervalu, which has 11 chains nationwide, has been in decline for the last few years as it has faced increasingly intense competition from lower-priced competitors against the backdrop of a tough economy.

Mike Hughlett • 612-673-7003

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