CSFB RETAIL AND CONSUMER CONFERENCE

ELLIOT ZWIEBACH

NEW YORK - Supervalu may look for in-market acquisition opportunities, but it plans to utilize free cash flow primarily to pay down debt and work the company back to investment-grade status, Jeff Noddle, chairman and chief executive officer, told an investors meeting here last week.

"That's our first priority," Noddle said at the Retail and Consumer Conference sponsored by Credit Suisse First Boston here.

While he did not rule out the possibility of major acquisitions over the next few years, he said that would be "unlikely" or "remote," given that its acquisition of the top-performing divisions of Albertsons just closed earlier this month.

"But if in-market opportunities come up, we might do some things," he acknowledged, adding that the sale of Albertsons itself "will create other transactions in the industry and opportunities for rationalizing overcapacity."

Some of that has already happened, he pointed out, with the announcement by Albertsons LLC - the company comprised of the underperforming assets of Albertsons that were acquired by a consortium headed by Cerberus Capital, New York - that it was closing and putting up for sale 100 Albertsons stores and 25 Super Saver stores.

Noddle said Supervalu still believes its financial guidance for this year of $2.60 and $2.80 per share remains valid. "We left some flexibility within those guidelines to make decisions we need to make in some markets, but we haven't seen anything yet that indicates we can't achieve what we've set out to achieve."

Asked why Supervalu believes it can be a better retailer than Albertsons was, Noddle emphasized that his company acquired only the top-performing assets of the Boise, Idaho-based chain. "We wouldn't have acquired all of Albertsons," he said.

"But what will make us better is that we will bring more flexibility to the market. We will be closer to customers and have the ability to deliver that flexibility with our supply chain capabilities as a backbone.

"In addition, the variety of format choices gives us a lot of different ways to strategize in the market."

Asked why the directors of Albertsons did not opt to retain the top-performing divisions while selling off only the underperforming ones, Noddle said he has wondered that himself.

"The directors said in September they were exploring strategic alternatives, and I'm not sure why they opted not to keep the strongest core of the company - the parts we acquired - unless perhaps they preferred the certainty of a transaction involving the whole company. I've wondered why they didn't do what we're doing ourselves [operating the strongest assets], and I don't know the answer to that."

Noddle said he is not sure why Supervalu stock is still trading at a 10-plus multiple.

"For years, we were primarily a wholesale company and people said we'd never get to a retail multiple unless we were a bigger retailer, and now we've become a bigger retailer and we still have a wholesale multiple. But I guess there's some skepticism that we can sustain the 7.2% cash flow margin in the properties we acquired."