Updated: Supervalu Execs Say Opportunities Don’t End With Unified Deal

Posted by Terrie

Date: April 11, 2017

Mark Gross

Supervalu is acquiring California-based Unified Grocers in a transaction valued at approximately $375 million. Supervalu also will assume and pay off Unified Grocers’ net debt, estimated to be $261 million as of April 1. The deal also includes the in-cash purchase of all outstanding stock from Unified Grocers’ members, who today own the cooperative, for $114 million. When the transaction is complete, Unified Grocers will be a wholly-owned subsidiary of Supervalu. Retailer customers will have a traditional wholesaler/distributor relationship with Supervalu.

The transaction was unanimously approved by each company’s board of directors, and is subject to approval by Unified’s shareholders as well as other customary closing conditions.

Money garnered from its sale of Save-A-Lot late last year aided Supervalu’s decision to acquire Unified Grocers. Bruce Besanko, Supervalu EVP, COO and CFO, said the company still will have the “financial flexibility” for more deals such as this one after the Unified transaction closes this summer.

“Our priorities on cash are unchanged,” Besanko said during a conference call Tuesday. “They continue to be grow the business, pay down debt and fund the pension obligations, in no particular order.”

Mark Gross, president and CEO of Supervalu, agreed that more opportunities will present themselves.

“For the past year, we’ve been articulating a picture of opportunities to grow the wholesale business,” Gross said. “It exactly fits with this deal that this ever-growing competitiveness will drive smaller distributors and regional self-distributing retailers to take a hard look at their cost structure and what they do best, and come to the conclusion on the retail side that they should really focus on being merchants. That gives an opportunity for us to add business, including M&A opportunities.

“And I think this is the beginning of our ability to accelerate the growth of our wholesale business, which we began last year,” Gross added.

Changes coming to California

Together, Supervalu and Commerce-based Unified operate 24 distribution centers supplying customers in 46 states and serve a combined customer base of 3,000-plus stores.

Gross also said that Unified’s warehouse assets are “good for what they are doing today, but I think they can be improved upon.” Supervalu will likely “reorganize” the way some products flow through the Los Angeles and Bay Area warehouses, he said.

“In the Pacific Northwest, we’ve highlighted that there’s an opportunity between all three distribution centers,” Gross said.

Unified has full line distribution centers in Stockton, California; Milwaukie, Oregon; and Seattle, Washington.

The two grocery wholesale organizations had combined sales of approximately $16 billion in 2016.

The acquisition also would yield the potential expansion of Unified’s Market Centre division, a specialty and ethnic products business, to more independent grocers.

Following the completion of the transaction, Supervalu, with its headquarters in Eden Prairie, Minnesota, will maintain a visible presence in Commerce, as well as on the West Coast, including management and employees of the combined company.

Supervalu expects to incur transition and integration costs of up to $60 million within the first two years following the completion of the transaction. By the end of the third year following the completion of the transaction, the combined business will achieve a run rate of at least $60 million in cost synergies derived in part from consolidation of some back office functions.

The transaction is expected to be accretive to earnings per share, excluding the transition and integration costs, as well as potential purchase accounting adjustments, in the first full fiscal year following closing that begins Feb. 25, 2018.