The entry into Chicago through the acquisition of Jewel-Osco also was never worth the price paid, and competition from Dominick's, along with Supervalu's weakened position, meant continuing investment in margin without a real return. So, some analysts might argue that the price paid by Cerberus on a pro-forma per store basis doesn't look rich, but Supervalu's equity value would be burdened interminably by owning these assets. Getting rid of them, along with some $1.2 billion in liabilities of a multi-employer pension plan, is a good deal for long-suffering shareholders.
The second part of the deal takes the form of a tender offer by Cerberus and a very interesting set of four astute real estate partners, including KIMCO and Schottenstein Real Estate Group. The consortium, called Symphony Investors, will tender for up to 30% of the outstanding shares of SVU at a price of $4.00 per share, a significant premium to its thirty-day average trading value. This also is a valuable option for shareholders who desire liquidity after the unfulfilled promises of recent years. The floor for Symphony's acquisition through the tender is 19.9% of the shares (a tax issue), and Supervalu would make up the difference by issuing new shares so that Symphony's post-tender holdings amount to 30% in the ongoing company.
This too is good for continuing shareholders, as it aligns the interests of Cerberus/Symphony and Supervalu management. Five members of the existing board will resign, and five directors will stay on. Cerberus/Symphony will immediately add two directors, one of whom is Robert Miller, President and CEO of Albertsons LLC who will take over as non-executive Chairman of the Board. Four more directors will expand the board to eleven members. Sam Duncan, a very experienced retail operator, will take over as President and CEO of Supervalu and join the board, along with another Cerberus nominee. Finally, a search is on for two independent directors. From the executive management and governance standpoints, these changes bring much more industry operating expertise, real estate expertise, and financial acumen to the board. This too is a good thing.
When the review of strategic alternatives for Supervalu began quite a while back, the avowed goals were the following:
- Improve the current operating profile of the company;
- Position the company for future growth;
- Create shareholder value.