Track the companies that matter to you. It's FREE! Click one of these fan favorites to get started: Apple; Google; Ford.



SUPERVALU Goes Shopping

Months after first going on the auction block, Albertsons (NYSE: ABS  ) has finally succumbed to an acquirer: SUPERVALU (NYSE: SVU  ) . This morning, the grocer teamed with druggist CVS (NYSE: CVS  ) and a group of private equity investors to buy out Albertsons for $17.4 billion in cash, stock, and debt.

Because of the parties involved, the deal isn't exactly simple, but it's probably a good outcome for Albertsons' shareholders. They'll receive $20.35 in cash and 0.182 shares of SUPERVALU stock for each share of Albertsons stock they hold. That amounts to $26.29 per stub, or a 9% premium from Friday's close.

SUPERVALU will bear the brunt of purchase and, accordingly, get most of the spoils. The Minnesota-based grocer will pony up $12.4 billion, including $6.1 billion in Albertsons' debt. In return, SUPERVALU will instantly become the country's second-largest grocery chain, trailing only Kroger (NYSE: KR  ) .

It will also have a vastly expanded operation throughout the West, including key markets in Southern California. All told, were the deal to go through, SUPERVALU would grow its base of retail outlets by approximately 1,100 stores. But it would also face significant hurdles, most of which are problems it inherits from Albertsons and which are well-documented by fellow Fools W.D. Crotty and Stephen Simpson.

So, instead, let's talk about what this means to CVS. Already the nation's largest pharmacist, CVS expects to pay $2.93 billion for 700 stand-alone Sav-On and Osco drug stores and a distribution center. It's probably a good bet that many of these are in California, where CVS has only 21 locations.

If so, that's a huge win, since CVS' primary markets are in the Northeast and Midwest. Adding a durable position out West would complement its successful acquisition of Eckerd from J.C. Penney (NYSE: JCP  ) , which added a significant presence in Florida and Texas, according to Value Line. And while we don't know all the numbers, it's clear that CVS will be assuming, at worst, a very small portion of Albertsons' debt, a gesture that should help the company return value to shareholders faster.

Investors don't seem to see it that way. They're piling into shares of SUPERVALU and dumping CVS. SUPERVALU's stock is up more than 5% as I write, while CVS' shares are down close to 1%.

Call it the myopia of the market. All investors see is the headliner, and that's SUPERVALU. But it just became No. 2 in an industry that's pinched by labor strife and cutthroat competition, including Wal-Mart (NYSE: WMT  ) and Costco (Nasdaq: COST  ) . CVS, on the other hand, was already well-positioned in a slow-growing but vital business that virtually no one wants a piece of. Well, no one except this Fool, that is.

Go shopping for related Foolishness:

Tired of stocks that overpromise and underdeliver? Stick with what works by getting paid to invest.Sign upfor a risk-free 30-day trial to Motley Fool Income Investor and you'll get access to all of chief analyst Mathew Emmert's market-beating picks and advice on more complex investments such as real estate investment trusts and master limited partnerships. Orsubscribeorrenewtoday and we'll throw inStocks 2006, which features our analysts' best picks for the year ahead. All you have to lose is the prospect of a richer portfolio.

Fool contributorTim Beyersshops at Kroger, but only when his wife asks him to. Tim didn't own shares in any of the companies mentioned in this story at the time of publication. You can find out what is in his portfolio by checking Tim's Foolprofile. The Motley Fool has an ironcladdisclosure policy.

Read/Post Comments (0) | Recommend This Article (0)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

Be the first one to comment on this article.

Compare Brokers

Fool Disclosure

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 510515, ~/Articles/ArticleHandler.aspx, 10/27/2016 9:07:52 AM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...

Today's Market

updated 11 hours ago Sponsored by:
DOW 18,199.33 30.06 0.00%
S&P 500 2,139.43 -3.73 0.00%
NASD 5,250.27 -33.13 0.00%

Create My Watchlist

Go to My Watchlist

You don't seem to be following any stocks yet!

Better investing starts with a watchlist. Now you can create a personalized watchlist and get immediate access to the personalized information you need to make successful investing decisions.

Data delayed up to 5 minutes

Related Tickers

10/26/2016 4:00 PM
COST $150.98 Down -0.01 +0.00%
Costco Wholesale CAPS Rating: ****
CVS $87.57 Up +0.16 +0.00%
CVS Health CAPS Rating: ****
JCP $8.41 Up +0.04 +0.00%
J.C. Penney CAPS Rating: *
KR $30.90 Down -0.01 +0.00%
Kroger CAPS Rating: ****
SVU $4.34 Down -0.13 +0.00%
SuperValu CAPS Rating: **
WMT $69.59 Up +0.23 +0.00%
Wal-Mart Stores CAPS Rating: ***