Supervalu Letter Urges Stockholders Not To Vote For Blackwell Nominees

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Supervalu Inc. today revealed plans to mail a letter to its stockholders in connection with the company’s upcoming stockholders meeting, scheduled for Aug. 16. Supervalu’s board of directors is urging stockholders to vote for all nine of the company’s director candidates—as opposed to the six candidates nominated by activist investor Blackwells Capital LLC.

Stockholders of record at the close of business on June 25, 2018, are eligible to vote at the annual meeting.

The letter also highlights the “rapid execution of a strategic transformation strategy that is demonstrating strong momentum and already delivering measurable results,” says Supervalu.

The following are excerpts from the letter:

“Dear Fellow Stockholder:

Your Board of Directors and management team are committed to enhancing the value of your investment in SUPERVALU INC. and we continue to proactively develop and pursue opportunities to achieve that goal. We have been taking decisive actions to create stockholder value by rapidly and strategically transforming SUPERVALU into the wholesale supplier of choice in the U.S. grocery industry – and we continue to make meaningful progress.

At SUPERVALU’s upcoming Annual Meeting of Stockholders on August 16, 2018, you will be asked to make important decisions regarding the composition of the Company’s Board and the future structure of your Company, which we believe will impact the value of your investment. Blackwells Capital, a New York-based alternative investment firm, is trying to seize control of your Board by proposing to replace six of nine directors. Blackwells’ attempt to seize control of your Company, without paying a premium to all stockholders, is highly disproportionate to its actual ownership stake in SUPERVALU.

Any claim Blackwells could make to act on behalf of SUPERVALU’s stockholders is belied by the fact that, through short sales of call options and the purchase of put options, Blackwells’ exposure to the Company is substantially less than it represents. In fact, while Blackwells claims that it has a 7.7% ownership interest in SUPERVALU, analysis of the detailed information it has provided in its filings shows that, taking into account its various options contracts, Blackwells’ exposure to the Company’s shares is materially lower than 7.7%.

We believe that there is significant risk to the important progress the Company is making in executing its ongoing strategic plan by supporting Blackwells and its proposal to replace the majority of your Board…

“Your Board laid the foundation for SUPERVALU’s transformation by intentionally recruiting and hiring a wholesale industry leader with a strong track record of delivering growth, Mark Gross, to serve as President and Chief Executive Officer in February 2016. Under Mr. Gross’ leadership, the Company has taken major steps to position SUPERVALU as the grocery wholesale supplier of choice, while also ensuring that certain of the Company’s well-positioned retail assets are strategically used to add value to the overall business. These steps began long before Blackwells came on the scene and include:

Completing the Sale of Save-A-Lot. As an important early step in the strategic transformation of the business, your Board and management team pursued and completed the sale of the Company’s Save-A-Lot business in December 2016. This sale enabled SUPERVALU to utilize the $1.3 billion in proceeds to significantly reduce the Company’s debt and create flexibility to execute transformation initiatives and pursue important strategic acquisitions and growth opportunities.

Executing a Dramatic Turnaround of the Wholesale Business. Building on an annual sales base of approximately $8 billion, the Company added $5 billion in sales on a run-rate basis to the Wholesale business in just two years – a growth rate of over 60%. We were able to accomplish such significant growth, and increase Wholesale to 80% of total company sales from just 44% two years ago, through a combination of organic business growth and by completing the acquisitions of Unified Grocers (“Unified”) in June 2017 and Associated Grocers of Florida (“AG Florida”) in December 2017. These two acquisitions significantly expanded our customer base, geographic footprint, product offerings and expertise. In fact, we are currently executing the integration of Unified and AG Florida and have raised our 3-year synergy estimates by $20 million so that we now expect to achieve annual cost savings of at least $96 million.

Unlocking the value of our owned real-estate portfolio. We monetized a significant portion of our owned real-estate portfolio through the sale and leaseback of eight distribution centers, totaling nearly six million square feet of space. This transaction will generate net proceeds of approximately $445 million, which we are using to further reduce outstanding debt. We continue to work with a nationally renowned real estate advisory firm to assess the remaining approximately 13 million square feet of owned real-estate, while ensuring we maintain strategic and operational flexibility.

Reducing our retail footprint. In March 2018, we completed the sale of a majority of our Farm Fresh retail stores and pharmacy assets for a total of $53 million, and sold our minority stake in a multi-store Cub Foods LLC that generated proceeds of $14 million. In April 2018, we announced that we are pursuing the sale of our corporately owned Shop ‘n Save and Shop ‘n Save East retail operations in order to further optimize our asset base and provide us flexibility to invest capital in select, innovative store remodels and in-store merchandising initiatives within certain of our stronger retail assets.

Pursuing new initiatives. Consistent with our focus on growing our Wholesale business, we also pursued new initiatives designed to position us for success in our rapidly evolving industry. For example, our recent entry into a multi-year reseller agreement with Instacart creates a new professional services offering and expands our digital capabilities by allowing SUPERVALU to offer the benefits of online shopping and delivery services to more than 3,000 independent retail stores supplied by SUPERVALU, as well as other retailers across the U.S. in the over 240 metro areas where Instacart operates…

“We believe that the Company’s directors – Donald R. Chappel, Irwin S. Cohen, Philip L. Francis, Mark Gross, Eric G. Johnson, Mathew M. Pendo, Francesca Ruiz De Luzuriaga, Frank A. Savage and Mary A. Winston – have played critical roles in launching and overseeing the successful execution of SUPERVALU’s transformation.

SUPERVALU has a diverse and independent Board that benefits from a breadth of skills and expertise to position the Company for success. Eight of our nine directors are independent, and all of our directors are proven leaders with decades of experience spanning the wholesale, retail, finance, accounting and food industries, in addition to public company leadership and board experience.

We have made Board refreshment a priority, and as a result of this effort, we have appointed new directors who are playing an integral role in overseeing SUPERVALU’s transformation. Two of our directors have joined the Board in the past two years, six of our nine directors have served on the Board for less than five years and a new independent Chairman was appointed in July 2017.

Your Board has been – and will continue to be – a significant agent of change to improve SUPERVALU’s performance and deliver enhanced value to our stockholders. With a mix of new and tenured directors, your Board collectively brings the skills, expertise and knowledge of SUPERVALU and our industry needed to oversee execution of the Company’s operational and strategic plans.”

The full text of the letter can be found here.


Keep reading:

Supervalu Proposes Reorganizing Its Corporate Structure

Bergmann Leaves Supervalu West To Join Harvest/Sherwood

Supervalu Bringing Instacart’s E-Commerce Capabilities To Independent Retailers

About The Author

A word nerd, grocery geek and three-year member of The Shelby Report. She is a proud new homeowner and a great lover of avocado toast.

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