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# SUPERVALU Inc. Message Board

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• mittnewt mittnewt Nov 14, 2012 7:58 AM Flag

## How KIM (and their partner Cerberus) will make another 5x their equity in SVU

But they have \$ 6 billion in debt

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• \$6.064 billion, to be exact.

But you're missing the point.

I've only identified the replacement value for 40% of their (owned) stores. We can value the remaining 60% as a going concern.

Supervalu expects fiscal 2013 cash flow between \$900-950 million. For simplicity, let's assume that the 60% of stores generate 60% of the cash flows.

\$900 million x 60% = \$540 million

The cash flow multiple for grocery store ranges between 6-8x. Assuming the low end of the range implies a value of:

\$540 million x 6 = \$3.2 billion

Total valuation of the stores = \$5.3 billion for the owned stores + \$3.2 billion for the 60% not owned = \$8.5 billion

Add to that the value for the distribution business. Since I don't know how to value a distribution business, I'll refer to the SumZero article on September 26th that implies a value between \$1.4-4.4 billion.

Even if we discount the low end by 50%, that's a value of \$700 million.

Total value of SVU assets = \$5.3B + \$3.2B +\$0.7B = \$9.2B

Total liabilities of SVU = \$6.1B debt + \$1.0B pension obligations = \$7.1B

Total equity = \$2.1B

Equity per share = \$2.1B / 212 million shares = \$9.90 per share

To my original point, in my opinion, Cerberus and partners will most likely offer between \$4.00-4.50 per share for SVU. That leaves \$5.40-\$5.90 per share (\$9.90 value minus the \$4.00-4.50 offer) of intrinsic value for them, up to \$1.25 billion!

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