Supervalu said Thursday that it is selling its four largest traditional grocery operations in a $3.3 billion deal that halves the embattled company's size but likely improves its chances for survival.

An investment group led by private equity firm Cerberus Capital Management will pay $100 million for chains that include 877 stores, primarily in the Chicago area and on the East and West coasts. The buyers are also taking on $3.2 billion in Supervalu's debt.

Eden Prairie-based Supervalu will remain an independent, publicly traded company and will retain ownership of Cub Foods, the Twin Cities' largest grocery business, as well as four other regional supermarket chains. New York-based Cerberus also plans to buy up to 30 percent of Supervalu's stock.

Supervalu's remaining businesses will continue to face major challenges, notably lower-priced competition that the company has struggled to combat. But some analysts said they will have a better chance to succeed.

"Supervalu will be in a better position after the [Cerberus] sale than it was before," Morningstar analyst Michael Keara said. "What will be left will be able to stick around longer."

The Cerberus deal marks the end of a six-month search for a buyer of all or parts of Supervalu, after a decline that had sent its stock to lows not seen in at least 30 years.

The deal, expected to close by March 31, essentially returns Supervalu to what it was before a $12 billion mega-acquisition in 2006. The chains gained in that deal will go to Cerberus.

The Cerberus group, which includes several real estate companies, is getting Albertsons on the West Coast, Acme in the Philadelphia area, Jewel in the Chicago area and Shaw's/Star Markets in New England.

"Probably the one chain [Supervalu] wanted to keep but couldn't afford to was Jewel," said John Dean, a Twin Cities supermarket consultant. "Other than that, they're probably glad they got rid of them. ... They haven't been good for Supervalu since [the company] bought them."

Along with the five chains that will remain, Supervalu will retain its wholesale business, which supplies independent grocers and Supervalu-owned stores. And Supervalu will keep Save-A-Lot, a national discount grocery chain that analysts see as the company's best vehicle for growth.

CEO Wayne Sales said in a statement that the deal with Cerberus represents "the successful culmination of the in-depth strategic review process we commenced last summer."

Sales, the retired CEO of a major Canadian retailer who was installed as Supervalu's CEO in July, will be replaced by Sam Duncan, a retail veteran. Sales had been chairman of Supervalu's board when he replaced the ousted Craig Herkert.

Investors cheered the deal Thursday, bidding up Supervalu's stock by 43 cents, or 14 percent, to a closing price of $3.47.

A Cerberus-led group plans to offer $4 a share for up to 30 percent of Supervalu's stock, a 50 percent premium to its average closing price over the 30 days prior to Jan. 9

Shareholders have an exit

"The good news for shareholders is that they can tender at $4 per share, which given the current state of the business, is probably a good option," Scott Mushkin, an analyst at investment bank Jefferies & Co., wrote in a research note.

Keara agreed, writing in a report that "investors should consider the deteriorating results across the company's remaining business segments, which is why we believe the $4 per share offer should be accepted."

The new Supervalu will have more than $17 billion in annual revenue, about half of what it currently generates. It will get 47 percent of sales from its wholesale business. Another 25 percent will come from Save-A-Lot, which has 1,300 stores.

The remaining 28 percent will come from the 191 stores in Supervalu's remaining grocery chains, including Cub and Hornbacher's, a small banner in Fargo-Moorhead, and chains in St. Louis, Washington, D.C., and Virginia.

Sales told analysts that the remaining chains have been performing better on a sales basis than the larger chains that are being sold.

The deal with Cerberus undoes the 2006 megadeal in which Supervalu bought most of Albertsons Inc., taking on a load of debt that still haunts the company.

It will also unite all of Albertsons' stores under common ownership. In the 2006 deal, Supervalu picked up 569 Albertsons outlets, while a group led by Cerberus bought 655 of Albertsons' underperforming stores, eventually selling off more than 400 of them.

Supervalu still will carry about $3 billion in debt, even after offloading $3.2 billion in debt through the Cerberus deal. The firm is "still leveraged," Sales told analysts. "But we believe that certainly the leverage that we have is much more manageable."

Competitive pressure

As the U.S. economy deteriorated in the Great Recession, and competition from the Wal-Marts of the grocery world intensified, Supervalu increasingly fell behind, losing market share. With its large debt, it lacked the ability to swiftly cut prices and invest in its stores as much as was needed.

Thursday, Supervalu posted yet more weak results. Its fiscal third-quarter earnings, adjusted for one-time items, were 3 cents per share, falling short of the 5 cents forecast by analysts and down from 24 cents a year ago.

Supervalu's same-store sales -- a key gauge that accounts for recently closed or opened supermarkets -- were down 4.5 percent during the quarter. That measure has been consistently falling at Supervalu for over four years.

It has even been declining significantly in recent quarters at Save-A-Lot, which has a low-price format that should make it less susceptible to a relatively weak economy.

Supervalu's "deteriorating third-quarter results support our view that major competitive threats remain," Keara wrote.

Or as Wisconsin-based supermarket consultant David Livingston put it, "Supervalu is still a sick company."

Mike Hughlett • 612-673-7003