Albertsons Explores Possible Sale; Its Stock Jumps 11%

Albertsons Inc., which had been acquiring other food retailers as competition in the industry increased, may change course and put itself on the auction block.

Albertsons, second in size to Kroger Co. among U.S. grocery chains, said Friday that it hired Goldman, Sachs & Co. and Blackstone Group to explore “alternatives to increase shareholder value, including a possible sale.” The company’s stock rose $2.32, or 11%, to $23.05 on prospects for a sale, but rating firms said that they might downgrade its bonds.

Traditional grocers like Albertsons have been squeezed by discount-driven Wal-Mart Stores Inc.’s Supercenters and Costco Wholesale Corp. stores even as specialty retailers such as Trader Joe’s, Whole Foods Markets Inc. and ethnic grocers chew off small but growing pieces of the market. Albertsons also was hurt by a bitter 4 1/2-month strike and lockout at Southern and Central California supermarkets that ended in February 2004.

“It’s a rough business, and Albertsons never seemed to be able to get everything going at the same time,” said Jack Kyser, chief economist at the Los Angeles County Economic Development Corp.

Albertsons, based in Boise, Idaho, operates 2,500 stores in 37 states and has 240,000 employees. In addition to Albertsons markets, its store brands include Sav-on Drugs, Acme, Shaw’s, Jewel-Osco, Osco Drug and Star Markets. It also owns Bristol Farms, a high-end market chain in Southern California.

The company said it would have no further comment until its board “has approved a definitive transaction.” Executives didn’t return calls asking about its current status in the Southern California dogfight with Ralphs and Vons; although it has never been No. 1 in the region, its share of the market has exceeded 20% in Orange, Ventura and San Diego counties.

Analysts said it seemed unlikely that Kroger, Ralphs’ Cincinnati-based parent, or No. 3 Safeway Inc. in Pleasanton, Calif., which owns the Vons and Pavilions chains, would bid for Albertsons outright because their stores overlap so much.

Some speculated that Albertsons might be bought by a private investment firm that would sell it in pieces to smaller chains.

Other potential buyers could include Britain’s largest food retailer, Tesco, and Delhaize Group of Belgium, which owns the Food Lion markets in the United States, said bond analyst Pete Hastings at Morgan Keegan in Memphis, Tenn.

Albertsons has grown through acquisitions, including its purchase in the 1990s of American Stores Co., which operated Lucky Stores supermarkets and Sav-on drugstores.

Struggling to recover from the supermarket strike, it has seen revenue and profit increase this year, driven by last year’s acquisitions of the Shaw’s chain in New England and Bristol Farms, which has 11 stores in Southern California.

However, analysts said the company’s underlying sales with or without the Southern California stores were still not as good as its main competitors. Its stock had fallen 13% this year before Friday’s announcement that it would explore a sale.

Several bond-rating firms raised red flags about Albertsons debt securities Friday, including Standard & Poor’s Ratings Services, which put them on its watch list with negative implications, threatening to downgrade them to junk-bond status because of the company’s review of alternatives.

“Although the ultimate outcome of this process is uncertain, these strategic alternatives could potentially weaken bondholder protection measures,” said S&P; credit analyst Mary Lou Burde.

Bloomberg News and Associated Press were used in compiling this report.