BOISE, Idaho - Albertsons considered a variety of recapitalization schemes, an offer to sell selected stores to a competitor, and plans to operate as a smaller independent or buy a public competitor before finally accepting a $14.7 billion offer from Supervalu, Cerberus Capital and CVS.
Supervalu, the Minneapolis-based purchaser of the majority of Albertsons' stores, detailed the stormy courtship of Albertsons here last week in a preliminary proxy filing. The deal, which cleared federal antitrust barriers last week, is expected to close early this summer.
The filing also told of how the various partners that eventually purchased Albertsons came together, as well as the antitrust and breakup concerns that, for a time, unraveled the complex deal.
Feeling what it called "significantly increasing competitive pressures" from both alternative formats and a trend toward consumers eating at home less often, Albertsons officials began discussing broad strategic alternatives early last year, the filing said. In a board meeting last March, Albertsons' managers discussed the possibility that the company pursue either an acquisition to improve its scale and efficiency or, in the alternative, a plan to divest underperforming stores.
The board instructed management to pursue these and other ideas further with the help of two advisers:.
Blackstone Group and Goldman Sachs.
At a meeting in July, representatives of Blackstone and Goldman Sachs informed the Albertsons board that their analyses, reached independently, indicated it was unlikely Albertsons would be able to complete a "merger of equals" with a strategic competitor but that stockholder value could be raised through a sale to financial buyers, or perhaps by a sale of its stand-alone drug store business. The board then instructed Albertsons to approach financial and strategic buyers to gauge their interest.
In the meantime, Albertsons was proceeding with a plan to divest itself of underperforming stores, the filing said.
The July inquiries had produced eight letters of interest by late August. But because no single entity appeared capable of providing all the equity funding necessary to acquire the entire company, the board in a Sept. 1 meeting discussed strategies to combine financial players into consortiums. The board also recommended that additional potential acquirees be contacted.
On Sept. 2, Albertsons acknowledged in a press release that a strategic review was under way.
Supervalu entered the picture in September, when Jeff Noddle, Supervalu's chairman and chief executive officer, phoned Larry Johnston, his counterpart at Albertsons. Their discussion led to a formal meeting Sept. 30 during which Supervalu indicated its interest in participating in a sale, provided that Albertsons could divest its non-core and stand-alone drug store business. In early October, Noddle apprised Supervalu's board of directors on the talks, and according to the filing, "the board identified the potential transaction as a unique strategic opportunity."
A letter of interest received by Albertsons on Oct. 12 indicated Supervalu valued the company at approximately $20 a share and proposed a deal that would provide Albertsons' stockholders with a 35% stake in the combined companies. Supervalu also expressed interest in working with financial buyers as a means to dispose of Albertsons' non-core businesses.
The eight potential financial buyers had by then combined into four consortia.
Albertsons' drug store business attracted two bids, the filing said. CVS had an edge over its unnamed counterpart because its bid included Albertsons' warehouse in La Habra, Calif.
In late November, one financial buyer proposed a recapitalization scheme whereby Albertsons would acquire a smaller retailer associated with the financial buyer, then commence buying back 50% of its stock at a premium. The financial buyer would then invest $1 billion in Albertsons with warrants to take an additional stake.
Supervalu and Cerberus made a formal offer on Dec. 8 but knew they would need to overcome some obstacles: Cerberus had indicated to Albertsons in early December that Albertsons stock has risen too high to make a feasible bid, and asked Albertsons to consider a recapitalization plan by which Cerberus would buy Albertsons stock at a reduced price. Both partners realized they would need to get the drug store bidder on their side to make the equity part of an acquisition work.
A second strategic buyer, not named in the document, at the same time offered to buy Albertsons' Jewel and Acme chains for $5.2 billion.
As Albertsons considered these four offers - as well as an internal plan to divest stores and continue operating - it permitted CVS to join the Cerberus-Supervalu group. The combined group made a revised offer Dec. 16. This offer - for $20.25 per share and an exchange of 0.182 shares of Supervalu stock for Albertsons stock - represented an increase of 25 cents per share. Other bidders had not modified their offers, the filing said.
Negotiations between the Supervalu group and Albertsons heated up in late December, but melted away when Albertsons' advisers said the company could not accept the risk of regulators interfering on antitrust concerns, the filing said.
While Albertsons resumed its plan to divest its non-core assets and continue operating, Supervalu and Cerberus executives were meeting to negotiate the sale of certain properties - 26 Chicago-area Cub Foods stores - that might mitigate Albertsons' antitrust fears. Cerberus in mid-January agreed to buy the stores from Supervalu, and the group then increased its per-share offer to $20.35.
This offer was approved by Albertsons' legal team.
"The proposal made by the Supervalu/Cerberus/CVS consortium represented the only actionable proposal to acquire the entire company at a price higher than the then-current price per share of Albertsons stock," the proxy said.