The fate of Albertsons supermarket employees and stores in Idaho will soon rest in a new owner's hands.
The struggling Supervalu Inc. chain has agreed to sell the Albertsons stores it bought six years ago. Supervalu said Thursday that it reached a deal to sell four grocery chains -- Albertsons, Acme, Jewel-Osco, and Shaw's and Star Market, a single chain with two banners - for $100 million in cash and more than $3 billion in debt. The sale includes 877 stores.
Theyre being sold an investor group led by a New York private-equity firm, Cerberus Capital Management LP.
The two Albertsons chains will reunite
All the chains were once part of Boise's Albertsons Inc., the company that grew from founder Joe Albertsons first store at 16th and State streets in Boise in 1939.
Supervalu in 2006 bought most of Albertsons Inc., including 569 Albertsons stores in numerous states, the other chains Supervalu is now selling, and a small California chain, Bristol Farms, that Supervalu sold in 2010. Supervalu's purchase included all of the Albertsons stores in Idaho.
Cerberus was another big player in the 2006 sale. Cerberus led a group of investment firms that bought 655 generally underperforming Albertsons stores that Supervalu didn't want, mostly in the south.
Cerberus and its investment partners created a Boise company, Albertsons LLC, to manage those stores. They closed most of the stores, selling many of them for the value of their real estate. But Albertsons LLC still operates about 200 stores, since renamed Albertsons Market, in the South and Southwest.
Supervalus Albertsons stores are in the West and the northern Plains.
The Cerberus acquisition will reunite the two Albertsons chains. Theyll be based in Boise, and theyre expected to keep the Albertsons name.
Fate of stores, employees not yet known
But neither Cerberus nor Albertsons LLC were saying much Thursday beyond their news releases, which didnt say what the new owners would do with the Supervalu stores or their employees. Supervalu employs an estimated 3,300 employees in Idaho, including about 1,000 in Boise.
Supervalu did say that it has no plans to announce any store closures before the sale is completed, which is expected to be sometime before April. It also said employment decisions will be made, probably over several months.
How the deal will work
The latest deal is as complex as the one six years ago.
Essentially, the deal undoes Supervalus 2006 purchase. The investors taking over Albertsons and the other Supervalu chains are the same as in the 2006 deal: Cerberus, Kimco Realty Corp., Klaff Realty LP, Lubert-Adler Partners and Schottenstein Real Estate Group.
They made out well on that 2006 deal. Kimco Chief Financial Officer Glenn Cohen said last August that Kimcos investment in Albertsons LLC has been repaid nearly five times over. He called it an investment that keeps on giving, The Wall Street Journal reported.
The investor group will acquire the stores for $100 million in cash, and a company called AB Acquisition, which is an affiliate of the Cerberus consortium, will assume $3.2 billion in existing debt.
That price is about one-fourth of the $12.4 billion that Supervalu paid six years ago.
Thats not all. The Cerberus consortium will buy up to 30 percent of Supervalus stock for $4 per share, a 50 percent premium to its average closing price over the 30 days through Jan. 9.
When the Cerberus deal closes, five current Supervalu directors will resign, and the board will be reduced from 10 members to seven members, including two appointed by the Cerberus consortium. One of those will be a nonexecutive chairman: Robert Miller, the president and CEO of Albertsons LLC and a former Albertsons Inc. executive.
Supervalu will later add four additional board members, including at least one more appointed by the Cerberus consortium and Sam Duncan, who will become Supervalus president and CEO. Duncan worked at Albertsons Inc. for 19 years, starting as a courtesy clerk at age 15.
Why Supervalu sold
Supervalu has struggled for years to turn around its grocery-store business, and the debt it took on during the 2006 acquisition didn't help. The broader supermarket industry has been facing growing competition from big-box stores such as Wal-Mart and Boises WinCo Foods.
While chains such as Kroger Co., which owns Fred Meyer stores, have adapted by tweaking store formats and building customer loyalty through discount programs and improved offerings, Supervalu has scrambled to keep pace.
Like Cerberus, Supervalu closed some Albertsons stores. It also cut administrative jobs in Albertsons Inc.s old offices in Boise. Supervalus employment in Idaho shrank about 40 percent from its 2007 level of 5,600.
This summer, Supervalu fired CEO Craig Herkert and tapped Chairman Wayne Sales to lead a turnaround and assume the roles of CEO and president.
Whats next for Supervalu
After the deal closes, Supervalu will consist of a food wholesaler, Save-A-Lot, and regional chains Cub, Farm Fresh, Shoppers, Shop 'n Save and Hornbacher's.
The company, based in Eden Prairie, Minn., is expected to generate annual revenue of more than $17 billion, half of the $35 billion it generates now.
Miller will succeed Sales as chairman, and Duncan will succeed him as CEO and president.
Supervalu said it will continue to work on cutting costs and repairing its business.
Statesman Business Editor David Staats, Statesman business reporter Audrey Dutton, reporter Mike Hughlett of the Star Tribune in Minneapolis, reporter Leslie Patton of Bloomberg News, and the Associated Press contributed.