MINNEAPOLIS — Supervalu Inc. has agreed to sell its Save-A-Lot hard discount grocery chain to private equity firm Onex Corp. for $1.365 billion in cash.
The deal comes more than year after Supervalu announced that it was exploring options for a separation of the Save-A-Lot business, including a possible spin-off into a stand-alone, publicly traded company. Earlier this year, Supervalu had made filings with the Securities and Exchange Commission to prepare for a potential spin-off of Save-A-Lot, and in August the company said it also would consider a sale of the business.
Currently, Save-A-Lot has 1,368 stores across 37 states, the Caribbean and Central America. Of those stores, 896 are operated by licensee owners.
“The sale of Save-A-Lot is another important step in Supervalu’s transformation. It provides us with a stronger balance sheet that will allow us to further build on our core strengths and growth opportunities,” Supervalu president and chief executive officer Mark Gross said in a statement. “It has been a pleasure to work with the Save-A-Lot team and, once this transaction is completed, I look forward to continuing to work with them as one of our largest professional services customers.”
With the sale, Supervalu and Save-A-Lot also will enter into a five-year professional services agreement in which Supervalu will provide Save-A-Lot with support functions for its day-to-day operations, including cloud services, merchandising technology, payroll, finance, and other technology and hosting services.
Supervalu and Onex said they expect the transaction to be completed by Jan. 31, 2017, pending regulatory approvals and other customary closing conditions.
“This is an exciting development in the history of Save-A-Lot,” stated Save-A-Lot CEO Eric Claus, who Supervalu named to that post in December. “As an independent company, we can more effectively focus on our growth and operating objectives. Onex’s experience and successful investment track record, specifically in corporate carve-outs, positions it as a strong partner for us, and we look forward to working with them.”
St. Louis-based Save-A-Lot serves more than 5 million shoppers a week and offers customers savings of 30% or more versus traditional supermarkets.
“Save-A-Lot provides its customers with measurable savings and is differentiated among its competitors in a growing segment of the industry,” according to Matt Ross, a managing director with Onex, which has its headquarters in Toronto and offices in New York and London. “We are excited to partner with the management team at Save-A-Lot, along with its licensed store owners, to enhance the company’s operations and support its growth for years to come.”
Supervalu said it plans to use the net proceeds from the Save-A-Lot sale to pay at least $750 million against its outstanding term-loan balance. The company added that it aims to use the remaining proceeds for further debt reduction and to improve its capital structure, as well as to fund corporate and growth initiatives.
“Today’s announcement is the result of a thorough process to maximize the value of the Save-A-Lot business and best position Supervalu for future success,” Supervalu nonexecutive chairman Jerry Storch stated. “Supervalu is successfully executing on its long-term strategic vision and positioning the company for continued growth and value creation. We are confident that this transaction will create exciting opportunities for both Supervalu and Save-A-Lot.”
As it explored a separation of Save-A-Lot, Supervalu had been sharpening its focus on its food distribution and retail grocery businesses. Most recently, the company announced a long-term distribution pact with The Fresh Market and, earlier, acquired 22 Food Lion supermarkets from Delhaize America to be converted into its Shop ‘N Save format.
After the closing of the Save-A-Lot sale, Supervalu’s retail network will include 1,773 stores operated by wholesale customers and 201 traditional retail grocery stores.