Please help me clarify my thoughts...
Cerberus buys 877 stores for $100M plus the assumption of $3.2B in debt. Total purchase price $3.3B. SVU is left with another 1950 stores and distrubution with approx. revenue of $17B. Cerberus will invest another approx. $250M to buy up to 30% of the REMAINING company and put in place new management to turn it around. The remaining company that now has $17B in revenue. I think Cerberus believes they can drop 1% to the bottom line.(over the next 2-3 years) This is $170M each year or .80/share(assuming no dilution) Safeway and Kroger currently have 8-18 PE ratios. That would give Cerberus a share price of at least $6.40/share. More than likely they will have a higher multiple because Wall Street will be enamored with the turn around story. This gives them at least a 60% return over 2-3 year period.
I believe that the current deal values SVU at a minimum of $4.50/share. I think that Cerberus believes it is even higher. They wouldn't pay $4/share if they believed it was fully valued. I understand that they believe they can extract more value by running the company better than current mgmt. The underlying assumption in any investment is that the current price I am paying is less than what I belive it will be in the future. I think the $250 million at $4/share says much more about the future price of SVU. I think the current price is based on shorts buying and dumping and other taking short-term gains.
What do you the rest of you think?
Or Cerberus buys 877 stores for $100M plus the assumption of $3.2B in debt. Total purchase price $3.3B. SVU is left with another 1950 stores and distrubution.SVU will not sell unless included in the deal is Cerberus must invest another approx. $250M to buy up to 30% of the remaining company.Maybe SVU started at 50% and had to reduce to 30% to make the deal. How long does Cerberus have to own the shares before they can sell?
Perhaps I am fortunate...some would say that investing in SVU was like trying to catch a falling knife..I had taken a ;ittle profit but that was just to leverage myself...I will hold on to a small amount... I'm near even... but in looking to the Cerberus future, I'm hopefull for their successful future..
I am not sure what to do. I own a decent amount of shares on supervalu in my own portfolio. What do you think. Should you sell? Regarding Supervalu. I have seen the stock double in value in the last two weeks and have read articles the stock was at one time over Ten dollars.
If you look at chart, before the cliff $4 was around the lowest price SVU ever been in its history .I agree with you that Cerberus looking for value higher than that. May be people need to ask themselves: If Cerberus is willing to pay $4 for this stock, do I want to give it up for $4?
the 250 Million goes to existing shareholders, does nothing for the new SVU
obviously, Cerberus wants the new SVU to be successful, because they have 250 Million riding on it
"nobody", including Cerberus, knows with certainty, how successful the new SVU is going to be, or where the stock price might be headed
large institutions will study the "new SVU" structure and financials--and will place buy or sell bets, based on their analysis--but so far, they ain't making any big effort to buy shares--otherwise, the price would be headed much higher
I agree that Cerberus is buying from existing shareholders but that is because they think $4/share is a good price. Terms include that if they cant get $4/share, SVU has to issue new shares. They want to dump $250M into the remaining entity. Of course Cerberus understands the risk and that it may not go exactly as planned but they are willing to shove $250M out there. They obviously believe they can get more than $4/share or they wouldnt do the deal. They know that it takes certain earnings per share and a certain PE ratio.
Dont think for a second the large institutions know how to value a deal. Most analysts have never run a company and prefer to remain arm chair quartebacks.