Albertson’s LLC sees “great potential” for the 877 stores it agreed to purchase from Supervalu Inc., says Bob Miller, the former’s chief executive officer and a retail turnaround veteran.

Albertson’s LLC, Supervalu Inc., Bob Miller, Rite Aid Corp., Fred Meyer, AB Acquisition LLC, Cerberus Capital Management LP, Kimco Realty Corp., Klaff Realty LP, Lubert-Adler Partners, Schottenstein Real Estate Group, Albertsons Inc., Acme, Jewel-Osco, Shaw’s, Star Market, Osco, Sav-on, New Albertsons Inc., NAI, Symphony Investors, Sam Duncan, Fred Meyer Inc., Shopko Stores Inc., Wayne Sales, Save-A-Lot

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Inside This Issue - News

Tough job ahead for Albertson’s

January 28th, 2013

MINNEAPOLIS – Albertson’s LLC sees “great potential” for the 877 stores it agreed to purchase from Supervalu Inc., says Bob Miller, the former’s chief executive officer and a retail turnaround veteran.

Miller, who is also the newly named chairman of Supervalu, said Albertson’s can "improve operations, drive new energy and create a winning attitude with our store-level associates, and earn back our customers’ trust and business."

A former CEO of Rite Aid Corp., Miller is credited with pulling the drug chain back from the brink of insolvency. Earlier, he built grocer Fred Meyer into a national force.

He was integral to this month’s deal, in which the parent company of Albertson’s acquired five supermarket chains from Supervalu for $3.3 billion. The buyer, AB Acquisition LLC, is an affiliate of a Cerberus Capital Management LP-led investor consortium that also includes Kimco Realty Corp., Klaff Realty LP, Lubert-Adler Partners and Schottenstein Real Estate Group.

In essence, the transaction reverses Supervalu’s acquisition of Albertsons Inc. in 2006. Supervalu will sell its Albertsons, Acme, Jewel-Osco, Shaw’s and Star Market chains, as well as in-store Osco and Sav-on pharmacies to AB Acquisition. The businesses are part of New Albertsons Inc. (NAI), a wholly owned subsidiary formed by Supervalu. AB Acquisition is acquiring 100% of the stock of NAI for $100 million in cash, subject to around $3.2 billion in debt that will be retained by NAI.

In addition, within 10 days a newly formed acquisition entity owned by another Cerberus-led investor consortium, Symphony Investors, will make a cash tender offer for up to 30% of Supervalu’s outstanding common shares at a price of $4 per share. The offer represents a 50% premium to Supervalu’s 30-day average closing share price as of January 9.

If Symphony Investors does not acquire at least 19.9% of Supervalu’s outstanding shares, Supervalu will be obligated to issue a number of new common shares to Symphony Investors, at the tender offer price, that will give the investment group at least 19.9% of Supervalu’s outstanding shares prior to the issuance. These transactions are all subject to customary closing conditions, including refinancing of certain Supervalu debt, but are not subject to shareholder approval. The process is expected to occur by April.

Upon closing of the transactions, five of the current Supervalu directors will resign and Sam Duncan, who held executive positions at Fred Meyer Inc. and later served as president and CEO of Shopko Stores Inc., will replace Wayne Sales as president and CEO. The board will also be reduced in size to seven from the current 10 members. Five will be incumbents, while two will be designated by Symphony Investors, including Miller.

Noting that Supervalu is one of the country’s largest food wholesalers, Duncan said, "Save-A-Lot is the nation’s largest hard discount grocer. Additionally, the company’s streamlined retail operation consists of five strong regional banners."

Fitch Ratings affirmed Supervalu’s issuer default rating at "CCC," while noting a significant decline in its business over the past six years. Annual sales, estimated at $17.2 billion, are down more than 13% from $19.9 billion in fiscal 2006, reflecting same-store sales declines and modest asset divestment. Fitch estimates the company’s earnings before interest, taxes, depreciation and amortization for the last 12 months were $700 million to $730 million, compared with of $924 million in fiscal 2006, a decline of 20% to 24%.

In June 2006 the Albertson’s assets acquired by Supervalu were generating $24.5 billion in sales, although there were some subsequent asset disposals.