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Albertsons Is Said to Be Close to Buyout

The grocer is likely to be broken up, sources say. It is expected to weigh several offers, including one from a group that includes Supervalu.

December 17, 2005|James F. Peltz | Times Staff Writer

Albertsons Inc. is getting closer to accepting a buyout offer that could lead to a dismantling of the supermarket and drugstore giant, and a group that includes grocery chain Supervalu Inc. is among the leading suitors, sources familiar with the matter said Friday.

The company's board is expected to weigh several offers this weekend, and an announcement about a winning bidder -- or that Albertsons has narrowed the list of finalists -- might be made as early as next week, said the sources, who requested anonymity because of the sensitivity of the talks.

Several groups that include private investment firms, grocery retailers and drugstore chains are vying to acquire all or part of Albertsons, which put itself up for sale in September. The total purchase price is expected to reach more than $9 billion.

A group that includes Supervalu, Cerberus Capital Management and Kimco Realty Corp. is among the front-runners, with a bid of about $25 to $26 a share, or as much as $9.6 billion, the sources said. But that possibility got a tepid response from investors. Albertsons' stock closed Friday at $24.33, up 34 cents.

Sources said other contenders included a group led by Yucaipa Cos., the investment firm of Los Angeles billionaire Ronald Burkle, who made much of his fortune buying and selling supermarket chains. Details of the company's Albertsons bid could not be determined Friday, and Yucaipa declined to comment.

Supervalu, a food retailer and wholesaler based in Eden Prairie, Minn.; New York-based Cerberus; and New Hyde Park, N.Y.-based Kimco did not return calls seeking comment.

Albertsons, a Boise, Idaho, company with 2,500 stores in 37 states and annual sales of nearly $40 billion, is likely to be broken up no matter who buys it, some analysts say. Some stores could be sold to other retailers, and some sites could be closed so that the underlying real estate can be redeveloped.

"Albertsons will break up, although it's still unknown exactly how that will happen," said Ted Taft of Meridian Consulting Group, an industry consulting firm in Westport, Conn.

Albertsons' stores include 270 of its namesake supermarkets in Southern California and the Sav-on Drugs chain, which has 332 stores in Southern California. It also owns the upscale food retailer Bristol Farms and a host of chains elsewhere in the country, including Jewel, Osco Drug, Acme, Shaw's and Star Markets.

It's possible that some Albertsons stores in Southern California would be among those sold or closed, Taft said, because some of its locations aren't competitive with those of the region's two other major grocers: Kroger Co.'s Ralphs chain and Safeway Inc.'s Vons and Pavilions stores.

But Sav-on would probably stay largely intact because the chain is a prosperous, leading player in Southern California, Taft said.

CVS Corp. and Walgreen Co., two other major drugstore chains, are looking at buying just Sav-on as a way to quickly expand into the Southern California market. That purchase could account for as much as $4 billion of the total purchase price for Albertsons, people familiar with the matter said.

A breakup of Albertsons could mean job cuts, especially if some stores are closed. Albertsons employs about 240,000 people. But Greg Conger, president of Local 324 of the United Food and Commercial Workers International Union in Orange County, said "we are cautiously optimistic" that a buyer would keep Albertsons and Sav-on largely intact in the region and prevent substantial job losses.

"Southern California for all of the major supermarkets is a cash cow," Conger said. "We're hoping that if they do break up the company and sell it in pieces, it will be sold in large chunks and that Southern California would be one of them."

Details of the bid made by the Supervalu group were first reported Friday in the Wall Street Journal. Among other potential bidders are reportedly a group that includes investment firms Thomas H. Lee Partners, Bain Capital and Warburg Pincus, and a group that includes investment firms Kohlberg Kravis Roberts & Co. and Apollo Management.

Kroger, the nation's largest traditional supermarket chain, also reportedly has been looking at Albertsons, although analysts have said Kroger would face stiff antitrust obstacles, especially in Southern California.

None of the firms said to be eyeing Albertsons have publicly confirmed or commented on their interest. Albertsons has said it won't comment on the sale until an agreement is reached with a buyer.

Albertsons launched its auction after a prolonged period of sluggish growth.

The company faces intense competition in many of its markets from traditional supermarkets and low-cost mass merchants, such as Wal-Mart Stores Inc., that are expanding into groceries. On Friday, Wal-Mart said it would build a 880,000-square-foot food distribution center in Barstow next year.

Albertsons, Ralphs and Vons also are struggling to regain the ground they lost in California during their 4 1/2 -month-long battle with the grocery workers union two years ago. Price cutting and other promotions aimed at recapturing customers have eaten into profits.

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Times staff writer Roger Vincent contributed to this report.

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