Grocery chain rejected offer
BOISE – Before agreeing that Albertson’s Inc. would be sold to a consortium led by Minnesota-based grocer Supervalu and drugstore chain CVS Corp., Albertson’s directors rejected an offer from another party for up to $30 per share, 14 percent higher than the Supervalu deal, according to a report filed with the Securities and Exchange Commission.
In a disclosure filed May 18 as part of a settlement of a shareholder lawsuit, Albertson’s said the proposal from an unidentified party was “substantially less firm” than the proposal offered by the Supervalu consortium and ultimately accepted by Albertson’s directors Jan. 23.
The rejected proposal would have recapitalized Albertson’s and kept the current board and management team for the grocery chain in place, as well as retained its headquarters in Boise, The Idaho Statesman newspaper reported Friday. It would have reduced the fees paid to two Wall Street firms advising the company on sale options and would have prevented Albertson’s executives from collecting millions of dollars in severance, including $54 million earmarked for outgoing CEO Larry Johnston.
The complex proposal called for Albertson’s to first acquire a smaller, traditional grocery operator affiliated with the proponent in a stock-for-stock transaction, then buy back half of Albertson’s outstanding common stock at $27.50 to $30 per share for an estimated cost of $5.5 billion.
The proponent of the deal would then invest $1 billion in exchange for a significant equity position in the company, including the right to acquire 10 percent of Albertson’s stock in the event the price of shares doubled from the initial offer price.
Burt Flickenger, a retail analyst and managing director of Strategic Research Group in New York, said the spurned offer was a “pipe deal,” allowing the suitor to insert a “pipe into the company” without buying all the outstanding shares. With 50 percent of the shares off the market, the remaining Albertson’s shares might increase in value and stockholders might benefit if the new controlling entity improved the chain’s weak performance.
“Albertson’s has been under-managed for a decade,” said Flickenger.
Albertson’s would not comment on the rejected proposal, but the report filed with the SEC said the Albertson’s board discussed it several times in December before concluding it had substantial risk and little guarantee that shareholders would ultimately realize greater value than the competing proposal offered by the Supervalu consortium.
Shareholders will meet Tuesday in New York to decide whether that deal, in which shareholders will receive about $26.29 in cash and Supervalu stock for all of Albertson’s 370 million common shares, should be finalized. The consortium led by Supervalu and CVS agreed to buy Albertson’s for $9.7 billion in cash and stock and assume about $7.7 billion in debt.
Gary Giblen, research director for Brean Murray, Carret & Co. in New York, said it’s not unusual for a company to reject what appears on the surface to be a better offer. He doubted the disclosure of the other purchase offer would jeopardize Tuesday’s shareholder vote that would divide the company among three different entities within the consortium.