ASSESSING THE SIMPLE MOTIVES BEHIND ALBERTSONS' SALE

David Merrefield

One of the enduring curiosities about the proposed sale of Albertsons to the Supervalu-led consortium of buyers has to do with the question of what prompted Albertsons' management and board to decide that it was time to sell.

As has been observed in this space on several occasions, it isn't as though Albertsons was on the ropes. It's a company of more than 2,500 stores under nine banners spread across 37 states. It generated some $40 billion in annual sales with reasonable, even if not spectacular, cash flow and profitability.

Somehow, it doesn't seem as though common competitive challenges of the type discussed in these pages every week could be sufficient to inspire Albertsons' capitulation. Yet that seems to be the case. Several days ago, Supervalu issued a preliminary proxy that contained a lengthy history of the proposed transaction. Much of the drama of the deal's ups and downs was outlined in a news article in last week's SN.

But for now, let's examine what was said in the document about Albertsons' motivation to sell. A "background" section notes "increasing competitive pressures," including "supercenters, discount stores (such as Wal-Mart), specialty grocers and large-scale drug retailers." The "food away from home" trend was also cited. And so, "these pressures have increased the need for Albertsons to ... consider potential transactions with strategic partners ..." None of those competitive circumstances are new, or unique to any one retailer, but evidently their cumulative weight tipped the balance at Albertsons.

To be sure, selling wasn't the only option under consideration. In another section, methods of rescuing Albertsons as an ongoing enterprise were specified, including divesting more assets or seeking recapitalization. Options such as these were rejected by the board owing to "execution risks inherent in the various alternatives," the narrative stipulates.

So it seems to be this simple: Albertsons' management and board considered themselves to be powerless actors transfixed in the crosshairs of shoppers' inexorable transit away from traditional supermarkets to other retailing venues. They threw in the towel. Maybe better that than to stare down the threat for so long that far worse alternatives would be required.

But, still. Is the situation facing large-scale food retailers that dire? Some have found a way out of the wilderness. Let's hope more do so.

MICHAEL J. O'CONNOR

Last week's issue of SN featured a commemoration of the life of Michael J. O'Connor, who died earlier this month at age 86. Last week's tribute reviewed his many accomplishments. So for this purpose, let it be summarized that he was uncommonly tireless in his efforts on behalf of the food distribution industry. That fact is well known. What is less well known is that he was also a great friend to SN. He never allowed an opportunity to pass without remarking upon what he was kind enough to regard as the ever-improving quality of SN's editorial content. He was a wellspring of ideas about how a study, a concept or a new contact could find expression in these pages.

He did it all with no evident desire for reward beyond the betterment of the industry through information dissemination. He will be missed. (Also, see letter, Page 4.)