Supervalu buying Albertsons

MINNEAPOLIS – Supervalu Inc. will more than double in size and become the nation’s second-largest traditional grocery store chain after claiming the lion’s share of Albertsons Inc. as part of a $9.7 billion buyout.

Now it needs to avoid a bellyache from swallowing its larger rival.

“This is a huge step for Supervalu and we would not rule out some upfront indigestion, especially if the macro environment is not accommodating,” Goldman Sachs &Co. analyst John Heinbockel wrote in a research note.

Minneapolis-based Supervalu and the drugstore chain CVS Corp. led an investment group that said Monday it will buy Albertsons for $9.7 billion in cash and stock. The group made a similar attempt to buy Albertsons about a month ago, but the deal collapsed.

Albertsons stockholders will get about $26.29 in cash and Supervalu stock for each Albertsons share. The buyers are also assuming about $7.7 billion in debt.

Only Kroger Co. will be larger once Supervalu takes over 1,124 stores under the Albertsons, Acme Markets, Bristol Farms, Jewel-Osco and Shaw’s Supermarkets banners. The expanded Supervalu will have 2,656 stores nationwide.

Albertsons shares rose $1.31, or 5.4 percent, to close at $25.42 Monday on the New York Stock Exchange, while Supervalu shares rose $2.13, or 6.7 percent, to finish at $33.98, and CVS shares fell 11 cents to $26.96.

Supervalu will pay about $6.3 billion in stock and cash and assume about $6.1 billion in Albertsons debt for the 1,124 stores and in-store pharmacies under the Osco and Sav-on brands.

CVS of Woonsocket, R.I., is purchasing about 700 stand-alone Sav-on and Osco Drugstores and a distribution center in La Habra, Calif., for $2.93 billion in cash. It will also acquire real estate interests in the drug stores for $1 billion.

The other purchasers, led by Cerberus Capital Management, will acquire 655 stores in Dallas/Fort Worth, California, Florida, the Rocky Mountains and the Southwest. The group plans to operate the stores under the Albertsons name.

Following the transaction, approximately 65 percent of the new Supervalu will be held by existing Supervalu stockholders, and approximately 35 percent will be held by Albertsons stockholders.

The purchase has been approved by the boards of all the companies involved. If shareholders and regulators also approve, Supervalu sales will expand from $19.5 billion in 2005 to a projected $44 billion for fiscal 2006.