The parent company of Albertson’s LLC has agreed to acquire five supermarket chains from Supervalu Inc. for $3.3 billion, making Albertsons one of the top 10 U.S. pharmacy chains as measured by number of prescription counters.

Albertson’s LLC, Supervalu, Albertsons, pharmacy chains, Bob Miller, AB Acquisition LLC, Cerberus Capital Management, retail pharmacy operator, Acme, Jewel-Osco, Shaw’s, Star Market, Osco, Sav-on, in-store pharmacies, Rite Aid, Save-A-Lot, Sam Duncan, Wayne Sales, Symphony Investors

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Albertson’s to acquire 877 stores from Supervalu

January 21st, 2013

BOISE, Idaho, and MINNEAPOLIS – The parent company of Albertson’s LLC has agreed to acquire five supermarket chains from Supervalu Inc. for $3.3 billion, making Albertsons one of the top 10 U.S. pharmacy chains as measured by number of prescription counters.

The buyer, AB Acquisition LLC, is 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.

In adding most of Supervalu’s 797 pharmacies to its own nearly 200, Albertsons will have more than 900 prescription counters, putting it in on par with Kmart.

As of the close of its 2012 fiscal year last February, Supervalu was the ninth-largest U.S. retail pharmacy operator by dollar volume, with prescription sales of $2.35 billion. Albertsons’ estimated pharmacy volume was $690 million.

AB Acquisition will purchase Supervalu’s 877 Albertsons, Acme, Jewel-Osco, Shaw’s and Star Market stores and related Osco and Sav-on in-store pharmacies. The deal, which essentially reverses Supervalu’s acquisition of Albertsons Inc. in 2006, consists of a $100 million stock acquisition and assumption of some $3.2 billion in debt.

“We see great potential to improve operations, drive new energy and create a winning attitude with our store-level associates, and earn back our customers’ trust and business,” said Albertsons chief executive officer Bob Miller, who formerly headed Rite Aid Corp.

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 wholesale food 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 merchandisers, warehouse clubs and bigger supermarket rivals, as well as other channels including drug chains and dollar stores.

After the sale 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 network, compared with more than 2,400 stores previously.

In January 2006 Supervalu, CVS Corp. and an investment group that was led by Cerberus agreed to buy Albertsons Inc. for $17.4 billion.

Under that deal Supervalu acquired Acme Markets, Bristol Farms, Jewel-Osco, Shaw’s, Star Markets and Albertsons banner stores in the Intermountain, Northwest and Southern California regions along with Osco and Sav-on in-store pharmacies, for a total of 1,124 stores. CVS bought about 700 stand-alone Sav-On and Osco stores in Southern California, the Southwest and Midwest, and a distribution center located in La Habra, Calif., along with Albertsons’ 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.

Plans call for the newly formed Supervalu to be led by former OfficeMax CEO 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 Miller, who will serve as non-executive chairman.

Miller, who is credited with pulling Rite Aid back from the brink of insolvency, last year received the Horatio Alger Award for individuals “whose courage and determination allowed them to overcome the challenges they faced early in their lives and achieve success in their fields.”

Before becoming CEO of Rite Aid in 1999, Miller was credited with turning around Fred Meyer. Prior to that he served as executive vice president of operations at Albertsons.

Along with the sale of the Supervalu stores, plans call for a newly formed acquisition entity owned by a Cerberus-led investor consortium, called 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 January 9, 2013.

The transactions involved in the deal are expected to be finalized before the second quarter, 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 are not subject to shareholder approval.