Albertsons Sale Draws Bidders
The bidding line forming for grocer Albertsons Inc. is growing, with buyout firms, a hedge fund and a real estate investment trust crowding into the auction aisles, according to sources familiar with the deal.
Although the private equity interest is heavy, sources say a corporate bid for Albertsons is also possible, with interest from its U.S. competitors and European grocery giants.
And drugstores may be interested too. Albertsons’ drugstore chains may draw CVS Corp. or Walgreen Co. to the deal table, according to several analysts and a source close to the matter.
Albertsons, the No. 2 U.S. grocer, put itself up for sale this month, having struggled to keep up with competition from discounters. In addition to its namesake grocery stores, the company owns supermarket Shaw’s and drugstores Osco Drug and Sav-on Drugs.
“I think this will be a very interesting auction,” said Kurt Barnard, president of Barnard’s Retail Consulting Group. “We are dealing with a fine name that has simply not been able to measure up to the requirements in the post Wal-Mart world.”
Barnard said CVS and Walgreens were among the most likely corporate, or strategic, bidders.
But private equity interest has been the heaviest.
Sources say Kohlberg Kravis Roberts & Co., Texas Pacific Group and Apollo Management are one team. Thomas H. Lee, Bain Capital and Warburg Pincus are another. A third team consists of hedge fund Cerberus Capital and Kimco Realty Corp., a retail real estate investment trust.
Finally, Yucaipa Cos., the investment firm owned by billionaire grocery magnate Ron Burkle, is also interested and looking to team up with other investors.
Boise, Idaho-based Albertsons says it owns 60% of its stores, making it an attractive real estate play for a financial buyer who could sell the assets and lease back the real estate, using the cash to pay down debt used to finance the deal.
Despite its struggles, Albertsons could fetch more than $16.5 billion, including the assumption of $6.5 billion in debt.
On Sept. 2, the retailer said that it had hired Goldman Sachs and Blackstone Group to explore strategic options but added that no deal was guaranteed.
Albertsons said in June that quarterly profit nearly tripled, but analysts have said that the retailer is not doing enough to address competition in the grocery sector, particularly from Wal-Mart Stores Inc.
The retailer operates about 2,500 stores in 37 U.S. states, but it has pulled out of some unprofitable markets, including New Orleans and Omaha in recent years.
One person close to the auction said the Wal-Mart threat was being overplayed, given that Albertsons has a strong presence in California and the Northeast -- areas where Wal-Mart is less dominant.
The auction is still in its early stages, and so far, no corporate bidder has emerged. Analysts speculated early on that European retailers such as Britain’s Tesco, Belgian retailer Delhaize Group and France’s Carrefour were among the likely candidates.
But people familiar with the company and the auction say don’t rule out interest from U.S. drugstores, particularly CVS, which may want to gobble up Albertsons’ drug chains, Osco Drug and Sav-on.
CIBC analyst Perry Caicco said that Albertsons’ stand-alone drugstore business, consisting of 700 stores, generated sales of about $4.2 billion and could fetch an estimated eight times their estimated earnings before interest, taxes, depreciation and amortization, or $3 billion. EBITDA, as it is known, is a key measure of profitability and cash flow.
The asking price for Albertsons could range from $27 to $33.70 a share, analysts said.
Shares of Albertsons rose 16 cents Friday to $26, topping a 52-week high.
