Roundy's Seen as Attractive Acquisition Target

ELLIOT ZWIEBACH

MILWAUKEE — Roundy's Supermarkets here would be an attractive acquisition candidate if it is indeed for sale, industry observers told SN last week.

Amid widespread reports that Willis Stein & Partners, the Chicago-based investment firm that acquired Roundy's in 2002, is looking to cash out its holdings, observers said the chain should garner interest from both retailers and private-equity groups.

From a retailer's perspective, Roundy's has strong positions in two major Midwest markets — Milwaukee and Minneapolis — and the opportunity to move into Chicago.

From an investor's perspective, the chain is a successful operator with a strong management team and a focused growth strategy that would require almost no retooling.

Officials at Roundy's and at Willis Stein could not be reached for comment last week.

However, Robert A. Mariano, chairman, president and chief executive officer of Roundy's, was quoted a year ago saying he anticipated a change in the company's capital structure within the ensuing 12 to 18 months, involving a possible sale to a competitor or a new investor, or a public stock offering.

Asked two weeks ago whether Willis Stein was interested in selling the chain, he told SN, “I am not aware of any such discussion.”

Roundy's operates 153 stores — 96 Pick 'n Saves and 26 Copps stores in Wisconsin, and 31 Rainbow Foods stores in Minnesota — that account for volume of $3.9 billion, with plans announced two weeks ago to move into Chicago over the next three years with between 10 and 12 stores. Sources said a sale could fetch $2 billion or more.

“If it's going to be sold to a retail buyer, then Kroger is the name that comes up all the time,” one Midwestern observer told SN.

“Roundy's is firmly entrenched in its core market of Milwaukee, it has the Rainbow Foods chain in Minneapolis, and it plans to expand into Chicago — three markets in which Kroger does not operate and that are reasonably close to its Ohio roots. So a deal with Kroger would make a lot of sense.

“On the other hand, it would be very attractive to an investment company like Yucaipa, since it's a successful operator with a strong management team and a strong going-forward strategy that means an investor wouldn't need to retool. And Mariano has a previous connection with Yucaipa, having headed Dominick's at the time Yucaipa owned it in the mid-1990s.”

Chuck Cerankosky, an analyst with FTN Midwest, Cleveland, said the sale of Roundy's could mark the beginning of a move toward consolidation in the Great Lakes region — an area that also includes Spartan Stores, Grand Rapids, Mich.; Giant Eagle, a Pittsburgh-based chain with holdings in Ohio; and Marsh Supermarkets, Indianapolis.

Cerankosky said he doubts Kroger would be interested in an acquisition of any part of Roundy's, “because its preference is to favor in-market acquisitions.” As for the possibility of selling to an investment group, he said it would be unusual for one investor to sell to another.

David Livingston, managing partner at DJL Research, Pewaukee, Wis., said he believes Roundy's will “most likely” be sold to an investment group “that will allow Mariano to remain CEO.

“Yucaipa and Mariano have done well together in the past, and I predict they will again,” he said.

Livingston said he doubts Minneapolis-based Supervalu would be interested, because it recently sold stores in Milwaukee and because it is occupied with the Albertsons integration.

He said Roundy's could potentially sell a small number of the Rainbows in Minneapolis to Supervalu and sell the rest to area independents. “And even if some locations don't sell, it would be no big deal, since Roundy's got them for pennies on the dollar in the Fleming bankruptcy sale.”

According to Living-ston, now is a good time for Roundy's to sell, particularly given its market share of 62% in Milwaukee.

“That's its biggest asset,” he said. “But it's about to come under fire as Wal-Mart, Woodman's, Super Target, Costco, Whole Foods and Trader Joe's add stores to skim off some of that excess market share. So Roundy's knows its share will only be going down, and now is certainly the time to sell.”

Willis Stein acquired Roundy's in June 2002 for $750 million — the investor's first food-related acquisition. It converted the company from a wholesaler to a retailer in 2003.

At the time Willis Stein bought the company, it said that it usually holds on to its investments for five to 10 years.