Grocery store deal puts new owner behind local Albertson’s stores

A multibillion dollar deal for grocery stores puts a new corporate owner behind the Albertson's brand in Las Vegas.

Supervalu Inc., the nation's No. 3 traditional supermarket operator, said Thursday that the sale of 877 stores to an investor group led by Cerberus Capital Management will include Albertson's, Acme, Jewel-Osco, Shaw's and Star Market.

Albertson's has a local presence with several stores in the Las Vegas Valley and 35 stores across Nevada. The company laid off 2,500 workers in Nevada and California in 2012.

After the sale, Supervalu will 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 also will keep its wholesale business that distributes groceries to stores.

The investor group will pay $100 million in cash for the stores, and the new company will assume $3.2 billion in existing debt. Cerberus also will offer to buy as much as 30 percent of the remaining Supervalu for $4 per share after the deal closes.

The group already owns about 200 Albertson's in the South and Southwest. In 2006, the New York-based private-equity firm had led an investment group that bought more than 600 Albertson's - including those in Dallas, Florida and Northern California - as part of Supervalu's acquisition of the chain, a deal valued at $17.4 billion at the time.

The group buying the five grocery chains, and their related Osco and Sav-on pharmacies, includes Kimco Realty Corp., Klaff Realty LP, Lubert-Adler Partners and Schottenstein Real Estate Group.

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.

Last summer, Supervalu fired its CEO and tapped Chairman Wayne Sales to lead a turnaround. The company said at the time that it was reviewing its options, such as putting itself up for sale. In the meantime, it has closed stores and cut jobs as part of an effort to reduce costs. Those efforts to fix its business will continue after the sale of its grocery chains is complete, the company said. Sam Duncan, who most recently was CEO of OfficeMax, will replace Sales .

On Thursday, Supervalu also reported a profit of $16 million, or 8 cents per share, for the third quarter. The results were boosted by a gain related to a settlement with credit card companies. A year ago, the company lost $750 million .

However, total revenue for the period declined 5 percent to $7.9 billion. Sales at locations open at least a year fell 4.5 percent, and 4.1 percent at Save-A-Lot. Its profit margins also fell, in part because the company said it boosted promotions and cut prices for shoppers.

Bob Miller, who heads the Albertson's already owned by the Cerberus-led investment group, said the performance at the new acquisitions could be improved.

"In 2006, we acquired a set of stores that lacked investment and were in tough shape," he said, noting that those stores have grown into a "solid regional supermarket chain with growing sales."

A representative for the buyers noted that the transaction is still subject to approvals and declined to say whether any job cuts were planned for the newly acquired Albertson's, or whether the other chains would keep their names.

Investors buy grocery-anchored shopping centers because they are seen as less vulnerable to slumps in the economy. Centers that have the best grocery store in the market attract other tenants, such as sandwich shops and dry cleaners, boosting landlords' investments.

"Everybody goes to the grocery store," said  Rich Moore, an analyst with RBC Capital Markets in Solon, Ohio. "There will be no time where grocery stores don't work."

Shares of Supervalu Inc. rose 4 cents, or 1.15 percent to close at $3.51 on Friday on the New York Stock Exchange.