Albertsons weighs merger with Sprouts Farmers Market, an organic grocer

Albertsons Cos., the Boise grocery-chain operator backed by Cerberus Capital Management, has held preliminary talks to merge with Sprouts Farmers Market Inc., people with knowledge of the matter said.

The discussions, which took place in recent weeks, are at an early stage and may not lead to a deal, said the people, who asked not to be named discussing private details.

The talks have involved a plan to take organic grocer Sprouts private and add it to Albertsons’ portfolio, which includes eponymous grocery stores and the Safeway store brand. Sprouts has no stores in Idaho.

Shares in Sprouts closed down 19 cents on Monday at $21.83, valuing the company at about $3 billion.

Representatives for Cerberus and Sprouts did not respond to requests for comment. A representative for Albertsons declined to comment.

Grocery stores have been battered by food deflation over the last year, forcing them to compete more aggressively over prices. The battle has weighed on Kroger Co., the largest U.S. grocery chain. The company posted negative same-store sales, excluding fuel, for the first time in more than a decade in the fourth quarter.

Grocers including Albertsons, Kroger and Wal-Mart Stores have expanded their offerings of organic food in response to changing consumer tastes in recent years. That has put pressure on natural grocers, including Whole Foods Market, to cut prices to better compete with the mainstream retailers.

In September, Amin Maredia, Sprouts’ chief executive officer, said deep price cuts driven by deflation were “not sustainable” and that his stores had been “exposed a little bit” by lower prices at large conventional stores.

Albertsons considered buying the Price Chopper grocery chain in the Northeast last fall, but no longer is considering it, according to published reports.

Cerberus first invested in Albertsons in 2006, then bought another group of Albertsons stores in 2013 from SuperValu. Albertsons agreed in 2014 to acquire Safeway in a deal valued at about $9.2 billion, which was completed the following year. The transactions changed Albertsons from a midsized company to the second-largest traditional grocery chain in the U.S.

In 2015, Cerberus began to prepare for an initial public offering of Albertsons, which now operates more than 2,200 stores, but delayed plans amid unfavorable market conditions.

New York-based Cerberus, led by billionaire Steve Feinberg, manages more than $30 billion in private equity holdings, distressed debt, other credit assets and real estate.

Sprouts could fetch about $26 a share in a deal, Jefferies Group analyst Christopher Mandeville wrote in a note to clients Monday, an 18 percent premium to its last closing price. A sale may attract multiple suitors and lead to a competitive bidding process that could potentially push valuation higher, he wrote.

This story was originally published March 20, 2017 at 2:55 PM with the headline "Albertsons weighs merger with Sprouts Farmers Market, an organic grocer."