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Albertsons says Cerberus ownership and Kroger valuation factors in strategic review

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In February, Boise-based Albertsons Companies said it would launch a strategic review of the company, a move that could point to an acquisition, sale, break-up, or other moves for the grocery giant.

The company has been largely mum on what the review means, outside of a carefully-worded news release.

But last week, during a call with analysts tied to the company’s quarterly earnings result, Albertsons leadership let just a little bit more info slip.

[Analysis: A sale? A breakup? Acquisitions? Nothing? Options for Albertsons after strategic review announcement]

Kroger’s higher value

JP Morgan analyst Ken Goldman asked about the reasons for the review.

“It’s just so odd to see a company that IPO’ed so recently, performing well fundamentally, adding great C-suite talent – to announce something like this, especially given how broad some of the wording is,” Goldman said. “So I’m just curious if you could talk about sort of what sparked all of this, which has created such noise in the market.”

Though Goldman set up his question by saying it was likely a “wasted bullet,” company president and CFO Sharon McCollam took the bait.

“So, Ken, it was really sparked by the fact that valuation compared to peers was not reflecting the strength of our performance,” McCollam said. “And there were reasons in our minds for some of that. Our performance has been… if you put us on the same basis at Kroger… if you measure us out, we outperformed Kroger in Q4. We outperformed them for the year, et cetera.”

Albertsons saw stronger results than Kroger, which owns Fred Meyer and other chains across the US over the last two years. But its stock trades at a lower multiple of expected sales.

Cerberus at the gates

McCollam didn’t stop there. She also noted that a factor widely speculated was part of the decision to launch the review.

“And of course, there was the overhang of the preferred shares that have hit the market, and then, of course, the IPO lockup was coming.”

Albertsons has been a controlled company, with Cerberus Capital Management owning a significant stake in the company since buying a piece of it in a 2006 split-up of the former Albertsons Inc. Cerberus later funded purchasing back another large portion of Albertsons Inc. and then the Safeway chain. It looked for several years to find a way to make its investment liquid, including a prior failed IPO attempt and a scuttled merger with Rite Aid. The successful IPO in the summer of 2020 took the company public, but Cerberus and other parties agreed to a series of lockup agreements that expired at intervals of six, 12, 18 and 24 months after the IPO date.

The last of those milestones – 24 months – expires this summer. The overhang McCollam refers to is the impact Cerberus and others have on the stock price if and when they suddenly flooded the market with shares.

Imagine if you’d spent years collecting all the copies of The Beatles’ White Album on vinyl. But you agreed you wouldn’t sell them until a specific date. Then suddenly, the date arrives and you list your massive collection all at once on Ebay. The price you could fetch would drop quickly since other collectors of the White Album would suddenly have numerous copies – your copies – to choose from.

The Wall Street Journal in an analysis article said finding a solution that “addresses (Albertsons’) valuation and its capital structure won’t be easy.”

As we noted last month, Albertsons could look at a number of options, but the one that would most neatly solve the stock overhang issue is a total sale of the company. But, there aren’t many obvious acquiring parties – and the WSJ analysis hints at it, though it calls any such bid a “white knight.”

While the company isn’t saying what happens – McCollam told analysts it would “keep you guys updated.”

Don Day - BoiseDev Editor & Founder
Don Day - BoiseDev Editor & Founder
Don is the founder and publisher of BoiseDev. He is a National Edward R. Murrow Award winner and a Stanford University John S. Knight Fellow. Contact him at [email protected].

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