Yesterday’s announcement by Supervalu that it was selling itself to United Natural Foods (UNFI) capped a persistent first-time campaign from Blackwells Capital.
The $2.9 billion total, $32.50 per share deal took Supervalu’s stock to its highest level since March 2016, and looks around 43% higher than its level when Blackwells first began buying in June of last year. Since October, Jason Aintabi’s fund has published two lengthy presentations – the latest of which dived so deep as to criticize the company’s sustainability report - and nominated a six-person board slate.
Although Blackwells said in February that it thought UNFI could afford to pay $42 per share and SpartanNash $45 to acquire Supervalu, it is undeniable that the deal accomplishes much of what the activist asked for, albeit not in the same order.
Indeed, UNFI is planning on divesting Supervalu’s retail operations “over time… [and] in a thoughtful and economic manner,” to pay off debt, which it thinks it can reduce substantially in three years. Blackwells would have separated the retail segment via a spinoff that might have allowed investors to recoup some value over time but at significant risk before accepting offers for the wholesale side of the business. Leverage would have been added through share repurchases instead of through the takeover.
As it is, shareholders will probably swallow an offer for the whole company, but the 65% intra-day swing in the stock price is unlikely to leave too many on the fence. The deal reinforces the bet on moving quickly toward wholesale and monetizing real estate that Supervalu’s management made and came after a bidding war with C&S Wholesale Grocers, according to Reuters, just a few days after Blackwells complained that the board was not entertaining offers.
Perhaps hoping to snare a competing bid, Blackwells told Activist Insight Online yesterday that it was reviewing UNFI’s offer and would formulate a response. David Nierenberg, a smaller shareholder that had supported Blackwells, indicated to me that he was happy with the outcome.
Meanwhile, the chances that UNFI could attract an activist should not be considered negligible. According to Activist Insight Vulnerability, the company was already lagging peers on key performance metrics. Yesterday’s 16% slump on the announcement might provide leverage for an arbitrage-based campaign. However much a deal to diversify its customer base might make sense, with several long-tenured directors and an unpopular compensation plan UNFI may have put a target on its back.
The humid weather seems to have got microcap activists fighting… each other.
This week saw two verbal brawls break out, with Wynnefield Capital saying that Consac founder Ryan Drexler has been a disaster as CEO of nutritional supplements company MusclePharm. So much so, in fact, that Nelson Obus’ staff holiday party might elect him to the fund’s hall of shame – the first time a second CEO from the same company will have been dishonored so.
In the other case of activist cannibalism, Stilwell Value chided one of the funds with board representation, Westport Capital Partners, at Wheeler Real Estate Investment Trust for sanctioning a loan it says was an outside product of the former CEO. “Rule #1: Don’t make loans from Company funds for the CEO’s outside projects,” Stilwell’s Megan Parisi wrote in the letter. “Rule #2: If, for some crazy reason, you violate Rule #1, make sure you watch very carefully.”
For more on the existential activist threats facing Wheeler REIT, look out for the next issue of Activist Insight Monthly.
Quote of the week comes from Matt Levine’s highlighting of the case of an activist that intentionally triggered a poison pill, as part of the Papa John’s saga. It’s a welcome warning:
“If you don’t quite read, or understand, or believe the poison pill, you might stumble into triggering it. ‘Wait, the poison was for me?,’ you might ask, as you swallow it.”
Article by Activist Insight