Cerberus Takes a Bite of Supervalu, Buys Albertsons

NEW YORK ( TheStreet) -- Five brands of struggling supermarkets chain Supervalu ( SVU) will be bought by Cerberus Capital Management and a consortium of real estate firms for $3.3 billion.

While the proposed deal is significant for Supervalu, it also means Cerberus won't buy the supermarkets chain whole.

Cerberus will buy Supervalu's Albertsons brand and its Acme, Jewel-Osco, Shaw's and Star Market food stores, in addition to the company's Osco and Sav-on pharmacies.

Cerberus won't be acquiring all of Supervalu, and after the closing of the deal, the supermarkets chain will remain publicly traded. A set of financial transactions accompanying the deal may help alleviate Supervalu's debt burdens.

The deal, which also includes Kimco Realty Corporation ( KIM), Klaff Realty, Lubert-Adler Partners and Schottenstein Real Estate Group in the buying consortium is structured in multiple parts and will keep Supervalu as a publicly traded company with remaining supermarkets businesses.

Cerberus and the investor consortium will buy Supervalu's Albertson's brand for $100 million in cash and approximately $3.2 billion in debt. The group will also take a 30% stake in Supervalu's remaining shares at a price of $4 a share. The investor group will, at minimum, own nearly 20% of Supervalu's stock, according to the press release.

Supervalu shares rose over 12% to $3.42 in early Thursday trading.

According to a press release announcing the deal, Supervalu will remain a large food wholesaler, with 1,950 stores nationwide spread across its Cub, Farm Fresh, Shoppers, Shop 'n Save and Hornbacher's. Those stores, Supervalu says, are expected to generate $17 billion in annual revenue, in a move to focus on "right-sizing operations and maximizing efficiencies across the company ."

As part of the deal, Supervalu said it's negotiated a new $900 million asset based revolving credit facility with Wells Fargo and a $1.5 billion term loan with secured by the parent company of its Save-A-Lot business. Both financial moves will allow Supervalu to replace its existing $1.65 billion asset-based revolving credit facility, the existing $846 million term loan, and refinance $490 million of its 7.5% bonds due in November 2014.

At the close of the announced deal, Sam Duncan will be named president and chief executive and Bob Miller will be appointed chair of the board, while current CEO Wayne Sales , will resign. Meanwhile, five current Supervalu directors will resign and after the closing of the deal, the board will be reduced to seven members from ten.

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