What happened

Shares of SUPERVALU Inc. (NYSE:SVU) surged today on news that the food supplier and supermarket operator would be acquired by United Natural Foods Inc. (NASDAQ:UNFI) for $1.3 billion. Shares of SUPERVALU were up 64.2% on the news as of 12:47 p.m. EDT, while United Natural Foods tumbled 14.2%.

The exterior of a Supervalu store

Image source: Supervalu.

So what 

United Natural Foods (UNFI), a key supplier of chains like Whole Foods, said it would pay $32.50 a share for SUPERVALU, which has gradually converted itself from a supermarket operator to a food supplier through acquisitions and divestitures in recent years. The deal is valued at $2.9 billion, including SUPERVALU's debt. 

CEO Mark Gross said:

The combination of UNFI and SUPERVALU provides a substantial premium and delivers certainty of value to our stockholders, meaningful benefits to our customers, expanded opportunities for our employees, and the ability for us and our vendors to efficiently serve a varied customer base. We have been executing an ambitious strategic transformation for over two years. We believe that this transaction is the best and natural next step for our stockholders, customers, and employees.

Now what

SUPERVALU had struggled for years to build a sustainable, profitable business in the midst of an increasingly competitive supermarket landscape, and the deal no doubt looks like a win for the company, as it commanded a steep premium in the sale. Shares were trading slightly below the buyout price, indicating some skepticism that the deal would go through as agreed on. 

Activist investor Blackwells Capital had been agitating for a sale or a breakup for months, even suggesting UNFI as a buyer, so it's not surprising to see the acquisition.

Separately, SUPERVALU reported first-quarter results, saying comparable sales in its retail division increased 0.4%, and revenue jumped 35% to $4.76 billion due to two recent wholesale acquisitions. It also reported an adjusted loss of $0.18, down from a per-share profit of $0.54 the year before.

The deal is expected to close in the fourth quarter of this calendar year.

Jeremy Bowman has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.