SuperValu Inc. (SVU)

SVU 
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SUPERVALU (SVU)

Q3 2013 Earnings Call

January 10, 2013 10:00 AM ET

Executives

Steve Bloomquist - Director, IR

Wayne Sales - President, CEO and Chairman

Sherry Smith - EVP and CFO

Analysts

Tiffany Koenig - Citigroup

Mark Wiltamuth - Morgan Stanley

Edward Kelly - Credit Suisse

Ajay Jain - Cantor Fitzgerald

Jason DeRise - UBS

John Heinbockel - Guggenheim Securities LLC

Karen Short - BMO Capital Markets

Scott Mushkin - Jefferies & Company

Stephen Grambling - Goldman Sachs

Presentation

Operator

Good morning. My name is Mandy and I will be your conference operator today. At this time, I would like to welcome everyone to the SUPERVALU Third Quarter Earnings Call. (Operator Instructions) After the speakers' remarks, there will be a question-and-answer session. (Operator Instructions). Thank you. I would now like to turn the call over to your host, Steve Bloomquist, Director of Investor Relations. Sir, you may begin.

Steve Bloomquist

Thank you, Mandy, and good morning, everyone. I want to welcome everybody to this morning’s conference call. With me are Wayne Sales, President, Chief Executive Officer and Chairman; and Sherry Smith, Executive Vice President and Chief Financial Officer. Following prepared remarks, we will open up the call for your questions. So that we can accommodate as many people as possible, I would ask that you limit yourself to one question with one follow-up.

The information presented and discussed today includes forward-looking statements which are made under Safe Harbor Provisions of the Private Securities Litigation Reform Act of 1995. The risks and uncertainties related to such statements are detailed in our most recent 10-K filing. A replay of today's call will be available on our corporate website at www.supervalu.com.

With that, I will turn the call over to Wayne.

Wayne Sales

Thank you Steve and good morning everyone and thanks for joining us today. Earlier this morning we announced a definitive agreement under which SUPERVALU will sell its Albertsons, Acme, Jewel-Osco, Shaw's, and Star Market banners and related in-store pharmacies, Osco and Sav-On to AB Acquisition LLC an affiliate of Cerberus Capital Management LP, in a transaction valued at $3.3 billion. The sale will consist of the acquisition by AB Acquisition of stock of New Albertsons Incorporated NAI, a wholly-owned subsidiary of SUPERVALU, for $100 million in cash. NAI will be sold to AB Acquisition subject to approximately $3.2 billion in debt which will be retained by NAI. We’ll refer to this transaction as the sale.

As many of you know Albertsons LLC is an affiliate of Cerberus and currently owns and operates 192 Albertsons stores across the south and southwest as part of the transaction which includes 877 stores across the banners, AB Acquisition owned Albertsons LLC will reunite its Albertsons stores with the acquired NAI Albertsons stores. For detailed breakdown regarding the mechanics of the sales, I would like to refer you back to our press release.

This morning we also announced a Cerberus led investors consortium named Symphony Investors will initiate a tender offer to purchase up to 30% of SUPERVALU common stock for $4 per share. I am not going to go into the nuances of this tender offer on this call. Again, we provided more specifics in our press release this morning. However, Symphony Investors will provide details about the tender offer within the next 10 business days. This tender offer would result in the immediate cash value to shareholders as well as an opportunity for shareholders to maintain an equity stake in SUPERVALU moving forward. Both the sale and tender offer are subject to customary closing conditions and the completion of the fully underwritten refinancing of SUPERVALU’s debt.

Additionally, the closing the sale is conditioned on successful completion of the tender offer and vice versa. Finally, both the sale and the tender offer are expected to close in the first calendar quarter of 2013 and neither require SUPERVALU shareholder approval.

When we announced our review of strategic alternatives this past summer, our goals were to improve our business, better position the company for the future and create the best opportunity to deliver a significant shareholder value. I believe we have accomplished these goals.

SUPERVALU will emerge from the review process focused on three strong businesses. Our legacy and Independent Business, Save-A-Lot and retail food operations including five regional banners which include Cub, Farm Fresh, Hornbacher's, Shop 'n Save and Shoppers. By focusing on these core grocery businesses, we will create short and long term value for all shareholders.

As for the divested banners, they will become part of a company with financial resources, leadership and an experience necessary to help them improve their business. The divested banners are complementary to current Albertsons LLC operations focused primarily on traditional retail grocery and I believe that today's announcement provides these banners with the best opportunity for future success.

Since the coming CEO this past summer, SUPERVALU has made substantial headway in cost reduction initiatives by maximizing efficiencies and laying the groundwork for improving sales trends and the overall customer experience. Going forward, SUPERVALU will be led by highly respected and experienced interested veteran Sam Duncan who will become the new President and CEO. Sam has over 40 years of retail experience and most recently served as Chairman, CEO and President of OfficeMax. At the same time Bob Miller, will assume the role of the newly appointed non-executive chair of the board. I am confident that Sam will be able to build on our progress and help SUPERVALU fully realize its potential for improved results as a sustained shareholder value.

Following the completion of the transactions, SUPERVALU is expected to generate annual revenue in excess of $17 billion. SUPERVALU’s independent business division is one of the largest food wholesalers in the United States and we continue to serve our 1950 independent retailers nationwide with stable revenues. We expect this segment to capitalize on higher margin opportunities including providing more services and private label product offering to our customers. The independent business will represent approximately 47% of our go forward revenues.

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