Shares of Albertsons, the Boise-based grocer that put itself up for sale in August, rose 5 percent after the company received bids from...
Shares of Albertsons, the Boise-based grocer that put itself up for sale in August, rose 5 percent after the company received bids from two groups of private equity firms and No. 1 supermarket chain Kroger.
Kohlberg Kravis Roberts, Texas Pacific Group and Apollo Management have formed one group to buy Albertsons, and Bain Capital, Thomas H. Lee Partners and Warburg Pincus have formed another, according to people familiar with the matter. The Wall Street Journal earlier reported the bidding by the private equity firms and Kroger.
Albertsons, whose chains include Jewel and Shaw’s, is seeking a buyer for part or all of the company after competition from Wal-Mart and a 20-week labor strike led to a profit decline in three of the past four years.
The offers for Albertsons are all “in the high $20s a share,” according to The New York Times, which would value the company at more than $10 billion. Any offer would be expected to include about $6 billion in debt, The Times said.
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“There is just not sufficient Class A space currently in shopping centers, particularly in high-growth states,” said Burt Flickinger, managing director of the retail-consulting firm Strategic Resources Group. “Almost all of Albertsons’ business is in high-growth states. Albertsons is in a lot of metro markets and relatively well insulated from Wal-Mart.”
Shares of Albertsons rose $1.19 to $25.25 Monday. Kroger rose 27 cents to $20.07. Albertsons shares have risen 5.7 percent this year, compared with 14 percent for Kroger.
“We believe Kroger would confront material hurdles to a major deal,” Bear Stearns analyst Robert Summers, who has an “outperform” rating on Kroger, wrote in a report. “Kroger would need to divest 30 percent to 45 percent of the food-store assets due to FTC [Federal Trade Commission] concerns.”
Albertsons spokeswoman Shannon Bennett didn’t immediately return a call. Kroger spokesman Gary Rhodes declined to comment.
Profit at Albertsons fell in three of the past four years as it lost sales to both upscale and discount grocers.
Wal-Mart, the world’s largest retailer, added more than 1,000 grocery-selling supercenters since 2000 while Whole Foods’ revenue doubled during that period.
Albertsons is struggling in markets such as Dallas/Fort Worth, Colorado and Arizona. The grocer has been exiting markets where it doesn’t have a No. 1 or No. 2 market share, including New Orleans, Omaha, Neb., and Jacksonville, Fla.
The grocer, with 2,500 U.S. stores in 37 states, may be attractive for its real estate and cash flow, said Gary Giblen, director of research at Brean Murray in New York. Albertsons owns the land and buildings on 60 percent of its stores, most of which are in California, Illinois and Texas.
Private-equity firms bought retailers this year to capitalize on their ability to generate cash and for the value of their real estate. Kohlberg Kravis Capital, Vornado Realty Trust and Bain Capital acquired Toys R Us for $6.6 billion. Neiman Marcus was acquired by buyout firms Texas Pacific Group and Warburg Pincus for $5.1 billion.
“This is the last big deal that may come down probably in this decade,” Flickinger said. “Albertsons is in such high-growth markets where the population goes up 5 percent to 10 percent every five years.”
Chief Executive Officer Larry Johnston last year purchased the profitable Shaw’s chain from J Sainsbury for $2.48 billion. Albertsons bought American Stores in June 1999 for $12.5 billion, roughly doubling annual sales. That included chains such as Jewel, Acme and Lucky supermarkets and helped speed expansion into California.