BOISE, Idaho -- An investor group led by Supervalu Inc. agreed on Monday to buy struggling grocery chain Albertson's Inc. for $9.8 billion in cash and stock, said Reuters, ending an intense auction that only weeks before had fallen apart.
Under terms of the deal, Supervalu said it would buy 1,124 stores from Albertson's for an estimated $6.3 billion in cash and stock and the assumption of $6.1 billion of Albertson's debt. Drugstore chain CVS Corp. will buy 700 standalone Sav-On and Osco pharmacies and a distribution center from Albertson's for $2.93 [image-nocss] billion.
An investor group led by hedge fund Cerberus Capital Management LP and including Kimco Realty, Schottenstein Realty, Lubert-Adler Partners and Klaff Realty will buy 655 Albertson's and Super Saver stores and a number of distribution centers.
The acquisition is a significant leap for Minneapolis-based Supervalu, which will shoulder most of the transaction and become the second-largest supermarket company in the United States.
The agreement reached with both retailers and financial buyers brings to a close a closely watched and complicated auction that collapsed at the last minute in late December, in part over anti-trust concerns.
The deal values Albertson's at $26.29 a share, a 9% premium based on Friday's closing stock price. The total transaction value is estimated at $17.4 billion, including debt. Albertson's shareholders will get $20.35 in cash, plus 0.182 shares of Supervalu stock, which closed on Friday at $31.85. Shares of Albertson's, Boise, Idaho, rose 3.2% in premarket trading to $24.89 on Inet.
Albertson's put itself up for sale last September, having struggled with rising costs and increased competition from discounters such as Wal-Mart. Its shares fell from around $60 in 1999 to near $20 in the spring of 2003, and stayed in that lower range until takeover speculation fueled a gain.
"We strongly believe this new opportunity will result in a bright future for all stakeholders," Albertson's Chairman and CEO Larry Johnston said in a statement.
To alleviate any anti-trust risk associated with the deal, Supervalu said it would sell 26 Cub Foods stores in the Chicago area to a Cerberus-led group.
Supervalu's annual revenues are expected to more than double to $44 billion, from about $20 billion now.
The deal will catapult Supervalu to the No. 2 spot behind Cincinnati-based Kroger Co. in the U.S. supermarket sector, and expand the company's presence in key urban markets including Chicago and Southern California. But it also puts the retailer head-to-head with Wal-Mart, which is expanding rapidly in California and preparing to open its first Chicago store. Through massive supercenters that include a full line of groceries as well as discount store merchandise, Wal-Mart already sells more food than Kroger, and its low-cost strategy has put intense pressure on traditional grocers.
Supervalu, which has more than 1,500 stores catering primarily to the low-price market, has been looking for ways to reach a broader consumer base. It opened its first organic food store earlier this month. Acquiring Albertson's stores would allow the company to grow quickly in key urban markets, such as Chicago and Philadelphia.
Approximately half of the drugstores acquired by Woonsocket, R.I.-based CVS are located in southern California, with others in CVS' existing markets in numerous states across the Midwest and Southwest. CVS will also acquire Albertson's-owned real estate interests in the drugstores for $1 billion in cash, and intends to sell these interests at or soon after closing in a sale-leaseback transaction of equivalent value.
Following completion of the transaction, CVS/pharmacy will operate 6,100 stores across 42 states and the District of Columbia.
Tom Ryan, chairman, president and CEO of CVS, said: This transactionprovides immediate market share leadership in the high-growth, LA/Orange County and San Diego markets, which are new markets for us, and also strengthens our position in many existing markets in the Midwest and Southwest.
He added, The acquisition also provides economies of scale as well as a platform for further growth in California. The stores we have opened there to date are performing well ahead of our expectations; however, finding desirable real estate in southern California is challenging and takes longer than in most other parts of the country. This transaction offers speed-to-market in these fast-growing regions. In addition, we are picking up high-volume stores in our existing states, such as Illinois, Indiana, Missouri, and Arizona. Most of the market positions we're gaining are No. 1 or No. 2 shares, and these are also large and growing markets. So we are acquiring high-volume stores with valuable real estate.
CVS expects that the acquisition will enable it to achieve annual cost synergies through economies of scale in advertising, distribution and purchasing, as well as other efficiencies.
Albertsons is one of the world's largest food and drug retailers. The company's divisions and subsidiaries operate approximately 2,500 stores in 37 states and employ approximately 240,000 associates. Its banners include Albertsons, Acme, Shaw's, Jewel-Osco, Sav-on Drugs, Osco Drug, and Star Markets, as well as Super Saver and Bristol Farms, which are operated independently.
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