October 23, 2012
Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.
What: Shares of grocer SUPERVALU (NYSE: SVU ) continued their wild price swings today, reversing yesterday's huge gain and dipping as much as 12% after more details emerged regarding Cerberus' interest in the company -- as well as Wall Street reactions to that private-equity interest.
So what: As I noted yesterday, the rally in SUPERVALU was perpetuated by private-equity firm Cerberus attempting to coax banks, reportedly JPMorgan Chase (NYSE: JPM ) and Bank of America (NYSE: BAC ) , to aid it with $4 billion to $5 billion in debt financing to make a bid for SUPERVALU. Today we learned that a deal may also include $800 million to $900 million in equity as well. UBS analyst Jason DeRise may have some say in today's share-price slump, calling the bet on a private-equity firm buying SUPERVALU a "risky option [because of] SUPERVALU's continued underperformance in a very challenged industry." Needless to say, DeRise wouldn't recommend buying SUPERVALU at these levels.
Now what: Not much has changed since yesterday other than the fact that some investors are beginning to come to their senses. SUPERVALU's remaining cash dipped in its latest quarter while debt moved even higher, and that's a formula for failure for a company that can't seem to consistently remain profitable. Its peers are remodeling, building fuel stations, and introducing reward perks that the owner of Albertsons and Save-A-Lot just can't afford. SUPERVALU is well behind its peers, and it's about to fall even further behind. For the sake of current shareholders, SUPERVALU had better get a deal done, otherwise there could be a lot of pain still to come.
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