Why SUPERVALU Shares Spiked

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  ) surged as much as 14% following news that the company is thinking about selling its two largest chains before the end of the year.

So what: According to a report from Bloomberg, SUPERVALU is seriously thinking about selling its Albertsons and Save-A-Lot grocery chains to private-equity firm Cerberus Capital Management. In addition, Cerberus would be expected to take an equity stake in the troubled SUPERVALU. Originally, Cerberus had been interested in a broad-based takeover of SUPERVALU, but it struggled to find adequate financial backing.

Now what: If there were ever a moment where a stick was needed to scold investors for bidding up SUPERVALU, now is that moment. SUPERVALU is boasting an inordinately large and growing amount of debt, all while its competitors Safeway (NYSE: SWY  ) and Kroger (NYSE: KR  ) are adding fuel stations and completing store remodels to make shopping experience more of an all-in-one experience for its customers. SUPERVALU has grandiose plans of remodeling its stores and driving customer traffic through loyalty reward programs, but it simply doesn't have the room in its margins or in its pocketbook to make that happen. A sale of some assets, or the entire company, does seem likely, but don't make this out as being a deal on SUPERVALU's terms. This is a desperation move on SUPERVALU's part, and the stock should be avoided like the plague based on its dire situation.

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