Albertson’s sold for $17.4bn

In a major buyout deal involving no buyout firms, Albertson’s agreed to a sale valued at $17.4bn, with SuperValu, CVS and Cerberus Capital Management teaming up to buy the US supermarket and drug-store chain.

After months of haggling, Idaho-based supermarket and drug-store chain Albertson’s has finally inked a deal to sell itself in a $17.4 billion (€14.17 billion) transaction. The buyer consortium includes a mix of strategic and financial acquirers, and is made up of Minneapolis-based grocery chain SuperValu, Rhode Island-based drug-store operator CVS and an investment group led by Cerberus Capital Management, headquartered in New York.

Albertson’s was sold to SuperValu, CVS and Cerberus Capital Manage-ment for $17.4bn.

The purchase price is valued at $26.29 a share, representing a 27 percent premium to Albertson’s share price on September 1, 2005, the day before the company said it would explore its strategic alternatives. The per-share purchase price is comprised of cash and stock, with the cash portion representing $20.35 per share. The new buyers are also assuming roughly $9.67 billion of debt.

Cerberus’ role in the transaction is twofold. Primarily, the firm is approaching the deal as a real-estate play, and has recruited the likes of Kimco Realty, Schottenstein Realty, Lubert-Adler Partners and Klaff Realty into its investor group. The Cerberus-led team is acquiring 655 operating stores, which have been described as the “underperforming” assets of Albertson’s, as well as 100 percent of the distribution centres and offices in Albertson’s Dallas/Fort Worth division, Northern California, Rocky Mountain and Southwestern regions.

Cerberus is also playing a role in helping SuperValu and CVS avoid antitrust issues. As part of the transaction, Cerberus is acquiring 26 Chicago area Cub Foods stores, which are currently owned by SuperValu.

From the strategic side, SuperValu will take control of 1124 operating supermarket and combo-store pharmacies, while CVS is buying 100 percent of Albertson’s stand-alone drug-store business.

Interest in buying Albertson’s has been ongoing since September, when the company first announced plans to explore strategic alternatives. Bain Capital, Thomas H. Lee Partners and Warburg Pincus reportedly formed one group to look at the assets, while Apollo Management, Kohlberg Kravis Roberts and Texas Pacific Group were said to make up another interested party.

In December, however, after nearing a deal with the Cerberus-led group, Albertson’s announced that it had “terminated all discussions regarding the potential sale of the entire company”.

There was no explanation in the press release as to what sparked Albertson’s about face. Analysts that cover the company’s stock, however, speculate that the sale ultimately came as a result of desperation on the part of Albertson’s. Prudential Equity Group’s Robert Campagnino said in a research note, “The decision to go back to the table on the part of [Albertson’s] was also born of desperation, in our view, as we spoke with several shareholders that were more than a little annoyed that the board left $26 per share of value on the table”.

The transaction is expected to close in mid-2006, but still needs clearance from the shareholders of Albertson’s and SuperValu, as well as customary regulatory approvals.

The Blackstone Group and Goldman Sachs & Co. served as financial advisor to Albertson’s on the sale, while Lazard and Evercore Partners advised SuperValu and CVS, respectively. The Cerberus-led investment group tapped Lehman Brothers, UBS Investment Bank and JP Morgan Securities to serve as its financial advisors.

Calls to Albertson’s were not immediately returned by press time.