NEW YORK — Wall Street analysts said they see several positives for Minneapolis-based Supervalu following its sale Thursday of five retail banners to a consortium that includes Cerberus Capital Management, Albertsons LLC and four real estate companies.
According to Ajay Jain, a research analyst with Cantor Fitzgerald here, the sale marks "the end of a long period of value destruction" for Supervalu, and the parts of Supervalu that remain "[are] likely to be more of an operational turnaround, particularly in relation to Save-A-Lot."
As part of the transaction, the consortium acquired Acme Markets, Jewel-Osco, Star/Shaw's Markets and the parts of the Albertsons banner it didn't already own; a separate Cerberus-led group also bought up existing and new Supervalu common shares for an ownership stake of 21.2%.
"Despite the obvious risk of dilution form the issuance of [42.5 million new] primary shares, Supervalu's earnings base in not normalized at this time, with little or no reported earnings to begin with," Jain wrote. "We believe Cerberus is taking a long-term view — if there was a serious risk of dilution, Cerberus would have chosen to complete the tender offer at the time of the initial deadline of Feb. 25, when more than 40% of the shareholder base had indicated a preliminary interest to tender its shares.
"While the intended use of proceeds from the primary shares is reportedlyly general corporate purposes, we think this also encompasses debt reduction, which should help to offset the potential for significant dilution."
The acquisition price of the retail banners was $3.3 billion, including $3.2 billion in debt.
Deborah Weinswig, managing director for Citi Research here, said the sale of the retail chains, "while not deleveraging, has removed some of the weakest banners [from Supervalu], and the remaining ones [encompassing five independent chains] should not require as much price investment."
As a result, Weinswig said she was raising the target price per Supervalu share to $5, compared with $4 previously.
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