SUPERVALU WELCOMES YUCAIPA'S INVESTMENT

ELLIOT ZWIEBACH

MINNEAPOLIS - Supervalu here said last week it does not contemplate any management role for representatives of Yucaipa Cos. if the investment firm follows through on its intentions to acquire up to $680 million worth of the distributor's common stock, or about 12% of the total shares outstanding.

Industry analysts told SN any involvement by Yucaipa could potentially strengthen Supervalu's management capabilities while it integrates the Albertsons properties and could ultimately enhance the company's value for all shareholders.

Supervalu told SN that Ron Burkle, Yucaipa's managing partner, had met with Jeff Noddle, Supervalu chairman and chief executive officer, "to discuss his interest in owning shares of Supervalu for investment purposes. He has been a successful investor in the supermarket industry, and we see his interest as testament to the success and future growth potential of the new Supervalu.

"We do not contemplate Burkle will have any role within Supervalu."

Yucaipa representatives could not be reached for comment last week. Although the 30-day waiting period required by the Hart-Scott-Rodino Antitrust Improvements Act expired two weeks ago, it was not clear if or when Yucaipa planned to buy stock.

Yucaipa is the Los Angeles-based private equity investment company that bought a 40% stake in Pathmark Stores, Carteret, N.J., and a 15% stake in Wild Oats Markets, Boulder, Colo., last year. In the late 1990s, Yucaipa was the catalyst in consolidating Ralphs in Southern California, Fred Meyer in Portland, Ore., and other Western operations and selling them to Kroger Co., Cincinnati.

Industry analysts contacted by SN last week were generally positive in their reactions to a Yucaipa investment in Supervalu and, despite Supervalu's comments to the contrary, they said they expect the investor to have some role in the company.

"I don't think Supervalu would have any qualms about giving Burkle a call to ask what he thinks," said Chuck Cerankosky, an analyst with FTN Midwest Research, Cleveland.

Gary Giblen, senior vice president and director of research for Brean Murray, Carret & Co., New York, said although Supervalu is a well-managed company, it lacks a deep management team, "so it would probably be open to suggestions from Burkle and benefit from his expertise, and I think Noddle would be willing to give him a voice. Frankly, this [integration of Albertsons] is a very daunting task, and Supervalu has been moving at a glacial pace, with a lack of specific targets, so given Burkle's expertise, this could be a win/win for everyone."

Giblen said Yucaipa's interest in investing in Supervalu "underlines the fact Burkle believes the supermarket industry has bottomed out and is at an inflection point to do better. He's proven he has quite prescient timing."

Andrew Wolf, an analyst with BB&T Capital Markets, Richmond, Va., said he would expect Burkle to have some input into management decisions with a 12% ownership stake.

"At Wild Oats, a much smaller company, his 15% stake has enabled him to put people from Yucaipa's orbit onto the board and into some management positions, and while Supervalu is a much larger company and a 12% stake would not legally entitle him to play a role, it would be likely that he would have some say."

Given the fact Burkle was reportedly interested in acquiring Albertsons before Supervalu made its deal, "this is another way for him to get into the action," Wolf added.

Perry Caicco, an analyst with CIBC World Markets, Toronto, said Supervalu, at current prices, is a good investment for Yucaipa, "[which] seems to think many U.S. grocery assets are undervalued right now" - an opinion Caicco shares.

He also suggested a potential scenario in which Yucaipa could use its ownership stake to attempt to buy Philadelphia-based Acme from Supervalu to combine with its Pathmark holdings, "but frankly, this investment probably has little to do with Pathmark or Northeast consolidation in the near term," Caicco said.