SUPERVALU Inc. (SVU) Stock Rallies After Save-A-Lot Sale

Shares of SUPERVALU INC. (SVU) were trading up $0.40 or 8% in Monday’s premarket after news broke early this morning that the company had agreed to sell its Save-A-Lot business to a Canadian private equity firm.

SUPERVALU Inc. stock had closed at $5.01, up 2% in Friday’s regular trading session.

Here's what you need to know

SUPERVALU INC. is the nation’s third largest grocery retailer and distributor after Safeway Inc (SWY) and Kroger Co (KR). It operates well-known supermarkets chains such as Albertson’s and Jewel, Shaw’s and discount chain, Save-A-Lot.

The company, which operates a network of 3,342 stores nationwide, has struggled recently with the economic slump.
Last year, SUPERVALU had net income of $202 million on $19.7 billion in revenue.

Early this morning, SUPERVALU INC. announced that it had entered into a definitive agreement with an affiliate of the Canadian private equity firm, ONEX Corporation for the acquisition of SUPERVALU’s Save-A-Lot business for $1.4 billion in cash.
SUPERVALU Inc. (SVU) Stock Rallies After Save-A-Lot Sale
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The company first made public its plans to spin off the Save-A-Lot business one year ago.

The Save-A-Lot division is a discount grocery store chain with a network of approximately 1,370 company-owned and licensed stores in 37 U.S. states, Central America and the Caribbean. Save-A-Lot is responsible for a quarter of SUPERVALU’s sales.

SUPERVALU President and Chief Executive Officer, Mark Gross  said in the company’s announcement that, “The sale of Save-A-Lot is another important step in SUPERVALU’s transformation. It provides us with a stronger balance sheet that will allow us to further build on our core strengths and growth opportunities. It has been a pleasure to work with the Save-A-Lot team, and, once this transaction is completed, I look forward to continuing to work with them as one of our largest professional services customers.”

Save-A-Lot and SUPERVALU will enter into a five-year professional service agreement related to the sale of the unit. Under the professional service agreement terms, SUPERVALU will provide Save-A-Lot with support functions and services for Save-A-Lot’s day to day operations, which include merchandising technology, cloud services, payroll and finance in addition to other hosting and technology services.

SUPERVALU will use the proceeds from the sale to prepay at least $750 million against the company’s outstanding loan balance, using the remaining proceeds from the sale to reduce its debt further and improve its capital structure in addition to funding growth and corporate initiatives. The transaction is expected to be completed by January 31, 2017 and is subject to the customary regulatory approvals and closing conditions.

SUPERVALU will further discuss the details of the sale at a conference call to be held after their second quarter earnings release on October 19.

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Published on Oct 17, 2016
By Jay Hawk
Jay Hawk
Jay Hawk enjoyed a 12-year professional financial markets career incorporating extensive first hand futures and options experience obtained by trading in the stock, commodity and forex markets on U.S. exchanges. Since retiring as a full-time financial market professional, he has been actively trading stock, commodities, forex and options for his own account and managing funds for others, as well as writing financial market commentary and educational articles.

Copyrighted 2020. Content published with author's permission.

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