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Albertsons to Be Sold, Divided Into 3

One of the buyers in the $11.1-billion deal plans to refurbish the chain's Southland markets.

January 24, 2006|Jerry Hirsch | Times Staff Writer

Burdened with aging stores and growing competition, Albertsons Inc. said Monday that it had agreed to be sold and broken into three pieces.

The transaction could lead to a refurbishment of Albertsons supermarkets in Southern California and would make CVS Corp. the largest drugstore chain in the region.

Albertsons said an investor group that included grocery store chain Supervalu Inc., CVS and private investment firms Cerberus Capital Management and Kimco Realty Corp. would buy the Boise, Idaho-based food and drug retailer for $11.1 billion in cash and stock plus the assumption of $6.3 billion in debt.

Supervalu would acquire more than 1,100 stores, including the 270 Albertsons and Bristol Farms markets in Southern California. Both Supervalu and Cerberus, which would acquire the chain's stores in Northern California, plan to keep the Albertsons name.

Monday's announcement revives a deal that was scrapped last month, but none of the companies would say what changed. Analysts in December speculated that antitrust issues in the Chicago area were behind the sudden end to the talks.

Albertsons has been battered in recent years by intense competition from supermarket rivals and discount retailers such as Wal-Mart Stores Inc. The company in November said third-quarter profit fell 30% from a year earlier as it struggled with flat sales, aggressive competitors and disruptions from the hurricane season.

Along with Kroger Co.'s Ralphs and Safeway Inc.'s Vons and Pavilions stores, Albertsons also has been fighting to win back Southern and Central California customers lost in the 4 1/2 -month battle two years ago with its unionized workforce, which had protested proposed cuts in health benefits.

If approved by shareholders and antitrust regulators, the deal announced Monday would vault Supervalu to the No. 2 spot in the grocery store business after Kroger, giving it 2,656 stores in 48 states plus the District of Columbia. Its annual sales would more than double to $44 billion.

Eden Prairie, Minn.-based Supervalu, which operates 1,532 stores in 40 states, mostly under the Save-A-Lot name, declined to say whether it would close any stores or lay off any employees. It does plan to keep Albertsons' Southern California regional management in place, said Pamela Knous, Supervalu's chief financial officer.

And upgrade the stores.

"We intend to put a lot of capital into Southern California" as well as other regions where Albertsons operates, Knous said

That's good news to Bob Taylor, a Santa Monica architect. He said that investing to spruce up his Albertsons at Lincoln and Ocean Park boulevards would be a sign that the new owners cared about customers.

Albertsons doesn't "present this place the way they should," Taylor said. "They really need to enhance the environment."

Almost 80% of Supervalu's markets either are new or were remodeled in the last seven years, Knous said. "That's not how Albertsons has been maintained, and we know we can make some improvements."

Albertsons' lack of investment in its markets has hurt the chain, analysts say. According to Bear Stearns & Co. and research firm Trade Dimensions, Albertsons held a 16.8% market share in Southern California at the end of 2004, putting it third after Ralphs, which held an 18.1% share at the time, and Safeway-owned Vons and Pavilions stores, which had 17.4%.

"Better store conditions" as well as tailoring markets to the demographics of their communities would be two tactics Supervalu would use to gain market share in Southern California, Knous said.

Bristol Farms would maintain its upscale profile, she said. Some Albertsons locations might be converted into Sunflower organic supermarkets, which Supervalu recently launched to compete with smaller rivals such as Whole Foods and Wild Oats.

After learning of the sale, some shoppers voiced concern that prices would rise to pay for the transaction.

"The savings we can find here are great," said Patricia Ash, while shopping at the Albertsons on Lincoln Boulevard.

Ash probably doesn't need to be concerned, said Jack Brown, chief executive of Colton, Calif.-based Stater Bros. Holdings Inc., a 163-store regional grocer.

"I think things will actually get a little more competitive" because other chains may cut prices to capture Albertsons customers, Brown said. "Certainly we will be looking to gain whatever Albertsons shoppers we can."

Union officials welcomed the sale. "Supervalu has a reputation of being more worker-friendly than the previous Albertsons ownership," said Rick Icaza, president of United Food and Commercial Workers Local 770.

Investors also gave Supervalu an initial vote of confidence. Its shares rose $2.13 on Monday to $33.98. Albertsons shares climbed $1.31 to $25.42 while CVS dropped 17 cents to $26.96.

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