Supervalu rises as it closes on sale of 5 chains

Supervalu climbs as it completes the sale of 5 of its grocery chains to group led by Cerberus

Associated Press

NEW YORK (AP) -- Supervalu's stock rose more than 11 percent on Thursday as the supermarket operator announced that it completed the sale of five of its grocery chains.

THE SPARK: Supervalu said Thursday that it completed the sale and that operations for the grocery stores involved in the transaction would be transferred overnight.

THE BACKGROUND: Supervalu announced in January that it was selling Albertson's, Jewel-Osco, Acme, Shaw's and Star Market to an investor group led by Cerberus Capital Management. Supervalu said at the time that after the sale it would focus on its Save-A-Lot discount stores, as well as its smaller regional chains Cub, Farm Fresh, Shoppers, Shop 'n Save and Hornbacher's. It will also keep its wholesale business that distributes groceries to stores.

Supervalu has struggled for years to turn around its business. The broader supermarket industry has been facing growing competition from big-box retailers such as Target, drugstore chains and dollar stores. While bigger chains such as Kroger Co. have adapted by tweaking store formats and improving discount programs and product offerings, Supervalu has scrambled to keep pace.

As part of the deal, the investor group agreed to pay $100 million in cash for the stores, and assume $3.2 billion in existing debt. Cerberus also offered to buy up to 30 percent of what's left of Supervalu for $4 per share after the deal closed.

THE ANALYSIS: Ajay Jain of Cantor Fitzgerald said in a client note that the sale ends "a long period of value destruction" at Supervalu. The analyst said that the transaction gives the Cerberus group full ownership of Albertson's. It already owned about 200 Albertson's in the South and Southwest before the deal. Jain said he expects the group to take a very real estate focused approach to Albertson's.

He maintained a "Buy" rating and a $6 price target.

SHARE ACTION: Shares of Supervalu Inc. added 34 cents, or 8.2 percent, to $4.53 in afternoon trading. The stock has traded in a range of $1.68 to $6.78 over the last year. For the year to date, the shares are up 70 percent.

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