Why SUPERVALU Shares Surged
Mar 21st 2013 4:32PM
Updated Mar 21st 2013 4:36PM
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: SUPERVALU shares shot up as much as 14% today after the struggling supermarket chain completed its deal to sell $3.3 billion worth of assets to Cerebrus Capital Management.
So what: Supervalu will sell off five of its supermarket chains to the Cerebrus investing group, including Albertson's, Acme, Jewel-Osco, Shaw's, and Star Market, as well as in-store pharmacies Osco and Sav-on. Cerebrus will pay Supervalu $100 million in cash, and assume $3.2 billion in debt. Supervalu had nearly $6.2 billion in debt as of its last earnings report, so the Supervalu sale would seem to alleviate some of its interest burden and allow it to focus on its Sav-A-Lot stores and smaller local chains.
Now what: The sale will cut Supervalu's annual sales essentially in half, to $17 billion, but the company, which had posted quarterly losses repeatedly and suffers under a huge debt burden, had it's a back against the wall. In a statement, Supervalu said the move makes it a "more efficient wholesale and retail company." While today's sale is no guarantee of a turnaround, it does offer investors some hope, which is more than the company merited before. It's still a long road back to financial health for Supervalu, but this seems to be a good first step.
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The article Why SUPERVALU Shares Surged originally appeared on Fool.com.Fool contributor Jeremy Bowman has no position in any stocks mentioned. The Motley Fool owns shares of Supervalu. Try any of our Foolish newsletter services free for 30 days. We Fools may not 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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