SUPERVALU Moves Toward Using "For Sale" Sign

SUPERVALU Moves Toward Using "For Sale" Sign

After suffering a painful Friday the 13th with its stock hitting a 32-year low, a new week offers better times for SUPERVALU Inc. (NYSE:SVU).

On Monday, Goldman Sachs (NYSE:GS) upgraded the company’s shares from a “Sell” rating to “Neutral.” Then, news broke that Supervalu would  shop its financial information around to possible buyers, according to the Wall Street Journal’s Anupreeta Das. This will include buyout firms and other supermarket operators and distributors such as C&S Wholesale Grocers Inc.

In addition, other businesses joining the shopping party may include the private-equity firms such as Cerberus Capital Management, KKR Financial Holdings LLC (NYSE:KFN) and TPG Capital.

So show did the market react to the news? Shares jumped 8.6 percent.

After last week’s horrible first quarter earnings report numerous questions have followed about Supervalu’s future. The company also announced the suspension of its dividend, a “strategic” review of its different options, and it dropped all forecasts and outlooks.

Will the company break up? Will some chains be sold? Will the entire company be sold?

After last week’s report, CEO Craig Hekert wrote in a letter to employees via the Wall Street Journal, ”You can expect over the next several months there will be a lot of rumors and speculation.”

You can just hear the talk now among employees with Monday’s news.

In Das’ article, the news plays out with the following content:

The Eden Prairie, Minn.-based company is expected to send out confidentiality agreements to interested bidders this week, one of the people said. Supervalu’s bankers Goldman Sachs Group Inc. and Greenhill & Co. have not yet communicated to potential buyers if they will seek to auction the company in pieces or as a whole, one of the people said.

As the stock opened at $2.32 on Monday, it had a better risk-reward balance, according to the Wall Street Journal.

Goldman Sachs recognized this and upgraded the stock. They wrote in the research report:

“We continue to see a combination of secular and cyclical headwinds converging with SVU’s higher financial leverage to pressure results and limit free cash flow available to shareholders,” the firm wrote. “However, the market appears to be discounting this scenario with the shares now.”

“We continue to believe there is value in select assets, which drives our sum-of-the-parts valuation framework and should limit further downside.”

 

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