In an effort to staunch the flow of money leaving the company, Supervalu announced this month that it has finally struck a deal with an investor group led by Cerberus Capital Management LP that would not only pay off its debt, but give the company extra cash to reinvest into its other supermarket chains.
The deal came after the constant loss of customers to competitors like Kroger and Wal-Mart led to approximately $3.2 billion in debt. Hit hard by the recession, Supervalu ended the latest quarter with $6.18 billion in long-term debt and capital lease obligations with what appeared to be a long climb back from the brink of destruction.
Cerberus Capital Management's acquisition of Supervalu will be a complex transaction that is not expected to close until the end of March. After the deal is complete, Cerberus will own 877 stores from the Albertsons, Acme, Jewel-Osco, Shaw's and Star Market chains as well as in-store pharmacies under the Osco and Sav-on names. Also, as part of the deal, the Cerberus-led group will likely tender an offer for up to 30 percent of Supervalu's common stock at $4 a share.
In total, Cerberus is expected to spend $100 million in cash and take on $3.2 billion in Supervalu's debt, though some financial experts say the deal is more of a real estate play. "You don't buy failing grocery stores because you want to be in the grocery business," says a supermarket consultant. In his opinion, the group is likely to sell and close many of the stores it's buying to make back a majority of its investment.
Source: Reuters News, "UPDATE 4- Supervalu selling 877 supermarkets in $3.3 billion deal," Jan. 10, 2013