Supervalu Inc. (SVU) Shares Surge On Cerberus Deal

After over a week of speculations, a consortium of investors led by Cerberus Capital Management LP have agreed to buy the Albertsons stores from Supervalu Inc. (NYSE:SVU). Under the agreement, Cerberus and a group of real estate firms will be paying $3.3 billion for 877 stores, including Jewel-Osco, Acme, Albertsons, Star Market and Shaw’s outlets.

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The group initially had troubles financing the deal, but they have arranged $3.2 billion in debts and will pay $100 million in cash. Cerberus have also offered to acquire a 30 percent stake in the remaining part of Supervalu Inc. (NYSE:SVU) itself at $4 per share. That is a 32 percent premium over Supervalu’s $3.04 closing price on Wednesday. After the deal, the consortium will have at least 20 percent ownership in Supervalu. The partners of Cerberus are Klaff Realty LP, Kimco Realty Corp (NYSE:KIM), Schottenstein Real Estate Group and Lubert-Adler Partners.

Supervalu put itself up for sale last summer due to rising losses. Even heavy discounts to customers failed to improve its sales. On Thursday, the Eden Prairie, Minn.-based retailer reported the third quarter profit of $16 million, compared to $750 million loss in the same period last year. Net sales plunged 5 percent to $7.91 billion in the third quarter ending December 1, 2012.

By acquiring Albertsons from Supervalu, Cerberus plans to reunite the Albertsons stores with the ones it already owns. Cerberus had acquired over 650 struggling Albertsons stores in 2006. Cerberus have a reputation of restructuring  failing businesses, and investors expect it to do the same with Supervalu Inc.

In a separate statement, Supervalu Inc. (NYSE:SVU) said it has secured a $900 million load from Wells Fargo & Company (NYSE:WFC) and another $1.5 billion from a consortium of banks led by Goldman Sachs Group, Inc. (NYSE:GS). Supervalu was advised by the law firm Wachtell, Lipton, Rosen & Katz and Goldman Sachs. Cerberus was  advised by Barclays PLC (LON:BARC) (NYSE:BCS) and Schulte Roth & Zabel law firm.

After the announcement, shares of SUPERVALU INC. (NYSE:SVU) surged 12 percent to $3.40.