Why SUPERVALU Shares Popped
Jan 10th 2013 4:05PM
Updated Jan 10th 2013 4:40PM
Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.
What: Shares of grocer SUPERVALU soared as much as 19% after a long-awaited deal was announced with private-equity firm Cerberus Capital to sell off five of its chains for $3.3 billion.
So what: Weighed down by more than $6 billion in debt and increasing levels of competition, SUPERVALU agreed to sell Cerberus its Albertsons, Jewel-Osco, Acme, Shaw's, and Star Market chains today for $3.3 billion -- $100 million in cash and $3.2 billion in debt assumption. Remaining with SUPERVALU will be its Save-A-Lot discount stores, as well as Cub, Farm Fresh, Shoppers, Shop 'n Save, Hornbacher's, and its wholesale grocery distribution business. Upon closing of the deal, Cerberus may also buy up to 30% of the remaining SUPERVALU operations at a cost of $4 per share.
Now what: If you're an investor who made money on SUPERVALU, consider yourself among the very few lucky individuals, because this was nothing more than a deal done out of weakness. SUPERVALU simply didn't have the cash needed to renovate its stores to compete with the likes of Kroger or Safeway which have freshened the look of the inside of many of their stores and have introduced fueling stations in many locations to create a one-stop shopping experience. Despite the deal and looming debt reduction, I still see no reason to own SUPERVALU until its results perform a serious about-face.
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The article Why SUPERVALU Shares Popped originally appeared on Fool.com.Fool contributor Sean Williams has no material interest in any companies mentioned in this article. You can follow him on CAPS under the screen name TMFUltraLong, track every pick he makes under the screen name TrackUltraLong, and check him out on Twitter, where he goes by the handle @TMFUltraLong. The Motley Fool owns shares of SUPERVALU. Motley Fool newsletter services have recommended buying calls on SUPERVALU. Try any of our Foolish newsletter services free for 30 days. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.
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