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UNFI To Acquire Supervalu For $2.9 Billion

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United Natural Foods Inc. (UNFI) and Supervalu Inc. today announced that they have entered into a definitive agreement under which UNFI will acquire Supervalu for $32.50 per share in cash, or approximately $2.9 billion, including the assumption of outstanding debt and liabilities.

United Natural Foods logo“This transaction accelerates UNFI’s ‘Build out the Store’ growth strategy by immediately enhancing our product range, equipping us to bring an attractive, comprehensive product portfolio to an expanded universe of customers,” said Steve Spinner, UNFI’s CEO and chairman. “Combining our leading position in natural and organic foods with Supervalu’s presence in fast-turning products makes us the partner of choice for a broader range of customers. Together, we can provide our better-for-you products as well as other high-growth segments, improving customers’ competitive advantages in a dynamic marketplace. These benefits, plus our increased efficiency and productivity, will enable us to create value for our shareholders, enhance opportunities for our suppliers, provide a broader assortment for our customers and create new prospects for our associates over the long term.”

“The combination of UNFI and Supervalu provides a substantial premium and delivers certainty of value to our stockholders, meaningful benefits to our customers, expanded opportunities for our employees, and the ability for us and our vendors to efficiently serve a varied customer base,” said Mark Gross, Supervalu’s CEO. “We have been executing an ambitious strategic transformation for over two years. We believe that this transaction is the best and natural next step for our stockholders, customers and employees. I am very proud of the unwavering commitment and focus of our employees in driving our strategic transformation and serving our customers. I am confident that, together, Supervalu and UNFI will be well positioned to succeed—and to help our customers succeed—in today’s grocery landscape.”

Strategic and financial benefits

According to the companies, the transaction will greatly expand UNFI’s customer base and exposure across channels, including those where demand for better-for-you products is increasing and UNFI is under-represented. It also will unlock new opportunities through a comprehensive product portfolio.

Other benefits the companies expect as a result of the acquisition include:

  • Cross-selling opportunities—UNFI will benefit from its ability to deliver comprehensive and expanded offerings, including the addition of high-growth perimeter categories such as meat and produce to UNFI’s natural and organic products.
  • Expanded market reach and scale—The wider geographic reach and greater scale of the combined entity is expected to increase efficiencies and effectiveness.
  • Enhanced technology, capacity and systems—The combined entity plans to leverage scalable systems to streamline its processes, more efficiently meet the needs of its customers and reduce future capital expenditures.
  • Significant synergies—Through this combination, UNFI will be positioned to realize run rate cost synergies of more than $175 million by year 3.
  • Accelerating growth—After year one, the transaction is projected to be accretive to Adjusted EPS in year one with double-digit Adjusted EPS growth after year one, excluding one-time costs.

Governance

UNFI CEO and Chairman Steven Spinner will lead the combined entity. Sean Griffin, UNFI COO, will lead the Supervalu integration efforts, post close and lead an integration committee comprised of executives from both companies to drive the implementation of best practices from each company and the delivery of important synergies and a rapid and smooth integration.

Transaction details

UNFI expects to finance the transaction substantially with debt. Over time, UNFI plans to divest Supervalu retail assets in a thoughtful and economic manner.

Upon closing, UNFI’s net debt-to-EBITDA ratio is expected to be high. With strong cash flows, proceeds from divestitures and commitment to reducing debt, the company anticipates reducing leverage by at least two full turns in the first three years.

The transaction has been approved by the boards of directors of both companies and is subject to antitrust approvals, Supervalu shareholder approval and other customary closing conditions, and is expected to close in the fourth quarter of calendar year 2018.

Conference call

UNFI and Supervalu will host a joint conference call to discuss the transaction today at 8:30 a.m. Eastern Time. Participants in the call will include Spinner, Griffin, UNFI CFO Mike Zechmeister, and Supervalu CEO Mark Gross.

To access the conference call, dial (877) 512-9165 (U.S. toll-free) or +1 (706) 679-5795 (international), and reference conference ID number 8368779. Access to a live webcast of the call, along with accompanying slides, will be available on the investor section of UNFI’s website, www.unfi.com.

Grocery analyst weighs in

“The acquisition of Supervalu by United Natural Foods Inc. announced today gives more credence to our assessment that the wholesale food distribution business needs scale now more than ever to counter the pricing and competitive pressure permeating throughout the food retailing business,” said Mickey Chadha, VP of Moody’s, a financial services company.

“With extremely thin margins at Supervalu and organic growth opportunities hard to come by due to the challenging business environment for its wholesale distribution customers which are primarily independent food retailers or small retail grocery chains that are challenged the most in the current promotional environment it makes sense to join forces with UNFI, which has over 35 percent of its sales to grocery stores that specialize in faster growing natural and organic foods including Whole Foods.

“The transaction will also generate about $175 million in synergies, and UNFI has a much stronger balance sheet, which is necessary to invest in future growth while offering  financial flexibility.”


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