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Activist Investor Pushes For Major Changes At Supervalu, Suggests Breakup

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Blackwells Capital LLC, an alternative investment management firm with a 4.35 percent stake in Supervalu Inc., today sent a letter to the wholesaler and retailer’s board of directors, outlining its intention to submit director nominations to the board at the company’s 2018 annual meeting of shareholders. Blackwells also released a presentation detailing its analysis of Supervalu’s operations, strategy and finances, as well as a “plan to unlock significant value.”

According to Blackwells, it met with Supervalu Non-executive Chairman Donald Chappel and President and CEO Mark Gross in mid-January, when Jason Aintabi, managing partner at Blackwells, “communicated shareholders’ frustration with Supervalu’s performance and the need for real change in the company’s approach to operations, strategy and governance.”

“In the spirit of constructive, open collaboration, Blackwells has made good faith efforts to engage with the company,” said Aintabi. “The board’s passivity and the company’s persistent underperformance have left us with no alternative but to run an election contest and give shareholders an opportunity to vote for enhanced board leadership and support a mandate to explore all alternatives to unlock value.”

Some of the alternatives outlined in the letter include the sale of $1.8 billion of company-owned real estate; consolidation with a peer, such as SpartanNash, United Foods, C&S or a vertical strategic company; and making changes to the company’s business model.

“There are significant opportunities to improve margins and drive growth through pricing models (especially with CPG companies), direct-to-store delivery and white-label ecommerce solutions for independent retailers,” said Aintabi in the letter. “Over the course of our engagement with Supervalu shareholders, we will show that through focused effort and a dedication to unlocking value, SVU’s share price can reach approx. $45.05/share, or an increase of 215 percent.”

Supervalu issued a response to the letter this morning. It read, in part:

“The Supervalu Board and management team are confident that their ongoing efforts to transform the company are driving growth and enhancing Supervalu’s unique competitive position. The board and management team are committed to delivering value for all stockholders, have been and continue to proactively develop and pursue all opportunities to create stockholder value, and remain open-minded and receptive to ideas that enhance stockholder value.

“To that end, over the past few months, members of Supervalu’s board and management team have had several discussions and meetings with representatives of Blackwells. Discussions encompassed a variety of topics pertaining to the business and the company’s ongoing initiatives as well as our Board refreshment efforts—initiatives that have been underway substantially since before Blackwells became a stockholder. Despite our efforts to reach a constructive path forward and to discuss overlapping objectives, Blackwells has decided to threaten an unnecessary and counterproductive proxy contest,” the statement continued.

The company noted that sales from its wholesale operations are now approximately 75 percent of its total annual sales, up from approximately 44 percent two years ago.

“We continue to invest in well positioned retail assets, which remain important customers of our growing wholesale business,” the company said. “Retail assets that are not well positioned for long-term success are being operated to maximize cash flow, including limited capital investment. Capital invested into our retail stores will continue to be targeted, prudent, and focused in areas designed to generate incremental sales. We continue to pursue store sales and closures for underperforming locations while exploring options for specific banners.”

Supervalu is one of the largest grocery wholesalers and retailers in the U.S. with annual sales of approximately $16 billion. Supervalu serves customers across the U.S. through a network of 3,324 stores composed of 3,111 wholesale primary stores operated by customers serviced by Supervalu’s food distribution business and 213 traditional retail grocery stores operated under five retail banners in six geographic regions. Headquartered in Minnesota, Supervalu has approximately 31,000 employees.

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