Supervalu Inc., one of the nation's largest food and drug retailers, plans to sell five of its supermarket chains — including most of its pharmacies — in a $3.3 billion deal that will result in a new, smaller company.

Supervalu, Albertson's LLC, AB Acquisition LLC, Cerberus Capital Management, Albertsons, Acme, Jewel-Osco, Shaw's, Star Market, Sav-On, Osco, in-store pharmacies, Save-A-Lot, food and drug retailer, supermarket, retail business, food wholesale, supermarket business, Sam Duncan, Robert Miller, Wayne Sales, Craig Herkert, CVS

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Retail News Breaks

Supervalu to sell off five supermarket chains

January 10th, 2013

MINNEAPOLIS and BOISE, Idaho – Supervalu Inc., one of the nation's largest food and drug retailers, plans to sell five of its supermarket chains — including most of its pharmacies — in a $3.3 billion deal that will result in a new, smaller company.

Supervalu's planned sale of 877 supermarkets also includes those stores' Sav-on and Osco pharmacies.

Supervalu said Thursday that it has agreed to sell its Albertsons, Acme, Jewel-Osco, Shaw's and Star Market chains — a total of 877 stores — and their Osco and Sav-on in-store pharmacies to AB Acquisition LLC, an affiliate of a Cerberus Capital Management LP-led investor consortium that also includes Kimco Realty Corp., Klaff Realty LP, Lubert-Adler Partners and Schottenstein Real Estate Group.

AB Acquisition is the parent of Boise, Idaho-based Albertson's LLC, which operates 190 supermarkets under the Albertson's Market banner and two Super Saver Foods stores in eight states. With the acquisition, Albertson's and its subsidiaries will have 1,069 stores overall and 12 distribution centers.

Following the sale, Supervalu's retail business will comprise the Save-A-Lot hard discount grocery chain, with about 1,300 stores, as well as the supermarket chains Cub Foods, with 46 stores; Farm Fresh, with 43 stores; Shoppers Food & Pharmacy, with 56 stores; Shop 'n Save, with 42 stores; and Hornbacher's, with six stores. The company will also retain its food wholesale operation, which serves 1,950 independent grocery stores nationwide.

Industry observers have speculated for months about the likelihood of an asset sale by Supervalu, which in recent years has struggled financially and been burdened by a heavy debt load as it scrambled to compete with Walmart and other mass merchants, warehouse clubs and bigger supermarket rivals, as well as other retail formats such as drug chains and dollar stores.

After the sale of the chains closes, Supervalu will emerge as a much smaller company, with overall sales of around $17 billion, compared with $36 billion before, and about 1,490 stores in its retail store base, compared with more than 2,400 previously.

The deal means Supervalu also will be divesting the majority of its 797 pharmacies, which are located in its nearly 1,100 traditional supermarkets. Save-A-Lot stores don't have pharmacies.

As of the close of its 2012 fiscal year last February, Supervalu was the 11th-largest North American retail pharmacy operator by dollar volume, with pharmacy sales of $2.35 billion, and the 12th-largest by pharmacy count, with 798 in-store pharmacies.

The agreement announced Thursday also will reunite the Albertsons supermarket business under Albertson's LLC.

In January 2006 Supervalu, CVS Corp. and an investment group led by Cerberus agreed to buy Albertson's Inc. for $17.4 billion overall. Under that deal, Supervalu acquired Acme Markets, Bristol Farms, Jewel-Osco, Shaw's Supermarkets, Star Markets and Albertsons banner stores in the Intermountain, Northwest and Southern California regions plus their Osco and Sav-on in-store pharmacies, for a total of 1,124 stores. CVS bought about 700 stand-alone Sav-On and Osco drug stores in Southern California, the Southwest and Midwest, and the distribution center in La Habra, Calif., along with Albertson's ownership stake in the drug store properties. The Cerberus-led group acquired stores in Dallas/Fort Worth, Northern California, Florida, the Rocky Mountains and the Southwest, which became Albertson's LLC in June 2006.

Along with the sale of the Supervalu stores under the agreement unveiled Thursday, plans call for a newly formed acquisition entity owned by a Cerberus-led investor consortium, dubbed Symphony Investors, to make a tender offer for up to 30% of Supervalu's outstanding common stock for $4 per share in cash, a 50% premium to the company’s 30-day average closing share price as of Jan. 9, 2013.

The transactions involved in the deal are expected to finalize in first-quarter 2013, subject to customary closing conditions, refinancing of certain Supervalu debt (including a the closing of a $900 million credit revolver and a $1.5 billion term loan), the satisfaction of the tender offer conditions, and the closing of Symphony Investors purchase of Supervalu stock. Supervalu said the transactions aren't subject to shareholder approval. 

Plans call for the newly formed Supervalu to be led by former OfficeMax chief executive officer Sam Duncan, who will serve as Supervalu's president and CEO, taking over that post from chairman Wayne Sales, who this past summer had replaced Craig Herkert.

Supervalu also is slated to reduce its board from 10 members to seven. One of those members will be Robert Miller, the president and CEO of Albertson's LLC, who will serve as nonexecutive chairman. After a search process, the board will then be increased to 11 members, including Duncan and four new directors.

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