Los Angeles grocery magnate Ron Burkle, who became a billionaire by buying and turning around supermarket chains, is setting his sights on the owner of Albertsons and Bristol Farms stores in Southern California.
Supervalu Inc., the nation's second-largest grocery chain, said Thursday that Burkle's Yucaipa Cos. plans to buy as much as $680 million worth of Supervalu's stock, or about 12%.
Burkle told Supervalu Chief Executive Jeffrey Noddle that the acquisition was for "investment purposes," Supervalu said. Burkle and other Yucaipa officials declined to elaborate on their plans, but analysts said the Albertsons stores and other Supervalu properties offer turnaround potential.
"He's got more on his mind than being a passive stockholder," said investment portfolio manager Bill Frels of Mairs & Power Inc., which owns more than 2 million shares of Supervalu. "He's made a lot of money in leveraged buyouts and restructuring of supermarket operations. I'm sure he sees a lot of value here."
Supervalu shares rose $1.47, or 6%, to $27.68, their biggest jump in six months.
Burkle built his fortune -- estimated to be $2.3 billion by Forbes magazine -- by merging, buying and selling supermarket chains including Ralphs Grocery Co., Alpha Beta, Fred Meyer Inc. and Food4Less.
Eden Prairie, Minn.-based Supervalu is a low-risk investment for Burkle, Frels said. "Even if he doesn't line up partners and make a run at the company, he could do reasonably well just based on Supervalu's plans for absorbing Albertsons' operations."
Supervalu, whose nameplates include Acme, Shaw's and Jewel-Osco, acquired 1,110 Albertsons stores in early June, giving it nearly 300 stores in Southern California and Nevada along with 13 Bristol Farms outlets. Three Albertsons stores were recently renamed Lucky, a venerable West Coast brand absorbed by Albertsons in the 1990s, and several more Luckys are planned.
"We chose to promote the Lucky banner because we believe it is well recognized among consumers," Supervalu spokesman Haley Meyer said.
Supervalu expects to grow earnings by as much as $3 a share over the next three years through growth and economies of scale brought by its acquisitions, Frels said.
The company reported profit of $206.2 million, or $1.46 a share, in its fiscal year ended Feb. 25, compared with $385.8 million, or $2.71, the year before.
Supervalu "has a lot of good potential but also a lot of risk as it expands," said analyst Mary Lou Burde of Standard & Poor's. "It's a bit untested at this point."
Burkle's Supervalu investment is his second supermarket buy in as many years. Last year, Yucaipa bought a 40% stake in struggling Northeastern grocery store chain Pathmark Stores Inc. to become its largest shareholder and a 9.2% stake in Wild Oats Markets Inc., which sells organic foods in 24 states.
The supermarket industry is facing growing competition, at the low end from discounters including Wal-Mart Stores Inc. and at the high end from Whole Foods Markets Inc. and other pricey specialists.
The pressures have strained chain stores' ability to raise wages and benefits for workers and helped lead to a bitter 4 1/2 -month strike and lockout at Albertsons and other stores that ended in February 2004.
Burkle's interest in Supervalu was a pleasant surprise to Rick Icaza, president of United Food and Commercial Workers Union Local 770, which represents about 5,000 Albertsons employees in Southern California and has a contract with Supervalu that expires in March.
"When Ralphs was owned by Burkle, we never had a strike," Icaza said. "He didn't give away the store, but our most fruitful times were when he was involved in negotiations."