Why SUPERVALU Shares Popped

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 struggling supermarket chain SUPERVALU (NYSE: SVU  ) jumped as much 22% today on reports that it was close to a deal with investment group Cerberus.

So what: According to The Wall Street Journal, Cerberus would take some parts of the business private and purchase a stake in others, leaving the stock intact. All told, Cerberus is expected to contribute $500 million. SUPERVALU, which has been bleeding cash for the last few quarters, faces a host of problems including a crushing debt burden, fruitless restructuring costs, and increasing competition from the likes of Wal-Mart and Target. Shares are now worth just 10% of their price before the financial crisis, which prompted management to go hunting for a buyer.

Now what: At this point, pretty much any news is good news for SUPERVALU, as it seems like things can't get any worse. Based on some metrics, the stock is unbelievably cheap, trading at a P/S of just $0.02, and the variety of chains it owns, including Jewel-Osco, Albertsons, and Shoppers Food Warehouse, would seem to indicate that there's value to be found somewhere. Cerberus has expressed particular interest in Albertsons, as it already owns a different set of Albertsons stores. Expect an update when SUPERVALU reports earnings next Thursday.

Don't miss the next update on SUPERVALU:

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  • Report this Comment On January 04, 2013, at 5:39 PM, OklaBoston wrote:

    Takeover speculation looks to me like the only reason to be at all interested in this stock. That's not my game, so I'll pass on opening any pickat all on it.

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