This morning, SUPERVALU (NYSE:SVU) announced that it has reached a definitive agreement to sell five retail grocery chains with 877 stores to an investor consortium led by private equity buyer Cerberus. The news sent SUPERVALU shares soaring more than 17% in early trading, to a price of $3.56 as of this writing.
Chains Albertsons, Acme, Jewel-Osco, Shaw's and Star Market stores, and also the Osco and Sav-on in-store pharmacies, will all be sold to a Cerberus-led coalition of investors that includes Kimco Realty (NYSE:KIM), Klaff Realty, Lubert-Adler Partners, and Schottenstein Real Estate Group, in a transaction valued at $3.3 billion.
SUPERVALU will first create a subsidiary called New Albertsons, and then sell it to the buyers for $100 million cash. New Albertsons will also take on $3.2 billion of the previous SUPERVALU's debt (resulting in the $3.3 billion total valuation).
Speaking of old SUPERVALU, a second part of the deal has Cerberus and a second group of investors, called Symphony, making a $4-per-share tender offer to buy up to 30% of the shares of what's left of SUPERVALU after the divestiture of New Albertsons. This tender offer will be made within the next 10 business days. The tender offer represents a 50% premium to SUPERVALU's 30-day average closing share price as of Jan. 9, according to the company.
The $4 price is conditioned on at least 19.9% (two-thirds of the 30% being sought) of SUPERVALU shareholders tendering their shares for purchase. If not enough shareholders tender their shares, SUPERVALU will itself issue and sell new shares (at $4 apiece) to Symphony in sufficient quantity to give Symphony at least a 19.9% stake in the company.
Post-transaction, rump SUPERVALU will consist of " the Independent Business, a leading food wholesaler which serves 1,950 stores across the country; Save-A-Lot, the largest hard discount grocery chain in the United States, with approximately 1,300 stores; and SUPERVALU's leading regional retail food banners Cub, Farm Fresh, Shoppers, Shop 'n Save and Hornbacher's." Management puts the annual revenue of its rump business at $17 billion.
Also following the transaction, grocery retail veteran Sam Duncan will replace Wayne Sales as president and CEO of SUPERVALU and five current SUPERVALU directors will resign, the company said.
Rich Smith has no position in any stocks mentioned. The Motley Fool owns shares of Supervalu. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.