Shaw’s parent faces restructuring after acquisition deal falters

SHAW'S SUPERMARKET could face a massive restructuring after an acquisition deal between its parent company and Cerberus Capital Management faltered.
Posted 12/3/12

NEW YORK - Shaw’s Supermarket faces restructuring after a private-equity deal to acquire its parent company Supervalu Inc., faltered.

Cerberus Capital Management LP’s pursuit of grocery chain Supervalu Inc., the parent company of Shaw’s, has stalled because the private-equity firm has had trouble obtaining the funds for a leveraged buyout, said people familiar with the matter.

Potential lenders are balking because they’re concerned over how the Eden Prairie, Minnesota-based chain will manage the increased debt load as revenue shrinks, said the people, who asked not to be named because the process is private. Lenders are also pressing Cerberus to put more money into the deal than the firm is willing to, said another person.

Without a sale to Cerberus, Supervalu risks having to restructure its grocery chains on its own or sell individual assets, the people said. That may pose a challenge because the struggling retailer would face big tax payments for selling the assets, the people said.

Supervalu shares sank 19 percent to $2.28 yesterday in New York. They had dropped by two-thirds this year through Nov. 28.

Peter Duda, a spokesman for Cerberus at Weber Shandwick, declined to comment on the process. Mike Siemienas, a spokesman for Supervalu, declined to comment on negotiations with Cerberus.

Supervalu “has received a number of indications of interest and is in active dialog with several parties,” Siemienas said. “There can be no assurance that this process will result in any transaction or any change in the company’s overall structure or its business model.”

‘At what price?’

Cerberus could still get a deal done, said one of the people familiar with the situation. If it doesn’t buy Supervalu, the grocery chain could face a long process of restructuring and have a difficult time selling individual pieces of the business, said Chuck Cerankosky, an analyst with Cleveland-based Northcoast Research Holdings LLC.

“The company can sell the pieces, but the question is, at what price?” Cerankosky said in a phone interview. “That’s the tricky part. How many people are buying assets, and how many of them need financing?”

Supervalu’s market value has shrunk as the grocer lost more than $2.5 billion over the past two fiscal years, hurt by increasing competition from discounters and costs to run stores.

For its most recent quarter, ended Sept. 8, the third- largest U.S. grocery chain posted a net loss of $111 million, or 52 cents a share, compared with net income of $60 million, or 28 cents, a year earlier. Sales fell 4.6 percent to $8.04 billion in the quarter, and have fallen for 14 consecutive quarters, according to data compiled by Bloomberg.

In July, Supervalu said it was working with Goldman Sachs Group Inc. and Greenhill & Co. to review options. The company attracted interest in parts of its business from private-equity firms KKR & Co. and TPG Capital, as well as from billionaire Ronald Burkle, people with knowledge of the matter have said.

“This thing has languished for some time and nobody has come in saying they can fix it,” Cerankosky said.

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