What happened
Albertsons Companies (ACI 1.36%) stock rocketed 8.3% higher on Tuesday as of this writing, defying the broader market swoon. On Tuesday, the grocery store powerhouse announced it would undertaking a "strategic review." That's usually code for being open to a sale of the company, or perhaps more financial engineering schemes to boost shareholder value. So it's no wonder this defensive consumer staples stock was flying higher on a risk-off day for the markets.
NYSE: ACI
Key Data Points
So what
On Tuesday, Albertsons released a statement saying it had commenced a strategic review of its business, with the help of advisors from Goldman Sachs and Credit Suisse. In a press release, the company said, "The review will include an assessment of various balance sheet optimization and capital return strategies, potential strategic or financial transactions and development of other strategic initiatives to complement Albertsons' existing businesses, as well as responding to inquiries."
That appears to be corporate speak for, "we are looking to sell the company for an appropriate premium right now." But short of a sale, it appears as though other actions could be taken if there are no buyers.
It's unclear what other capital return strategies could be employed, however. The company already has around $8 billion in debt, and it raised its dividend this year amid strong results. So, any further increase in debt and capital returns could hurt the company's credit outlook.
Recently, Albertsons reported strong results that beat revenue and profit expectations, and the stock was about flattish year to date before today's announcement -- well ahead of the overall market. In general, grocery stores have done quite well during the pandemic as people have eaten at home more.
Of course, now that pandemic momentum may wane. As such, it appears the strategic review means the company is looking for a buyer.
Image source: Getty Images.
Now what
Albertsons was brought to market in June 2020 in an initial public offering out of private equity and the company's private equity backers still maintain a large stake and control the board of directors. Private equity firm Cerberus Capital is the largest shareholder in the company, and Apollo Global also owns preferred stock. The thing about private equity firms is they eventually need to sell their stakes to repay investors in their funds.
Given that the company is delivering strong results today, but that its momentum may stall as we exit the pandemic, it would be an opportune time for the company to sell to a large buyer. No wonder investors are buying ahead of that possibility.
