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Roundy’s Seeks to Raise $230M in New Stock Offering

MILWAUKEE — Having failed to find a buyer for the company over the past 10 months, the owners of Roundy’s Supermarkets here have decided to sell shares through an initial public offering to raise at least $230 million.

Industry sources told SN they expect most of the money raised to be invested in the Chicago market, where Mariano’s Fresh Markets operates four stores.

“To sell a company you need a growth vehicle, and for Roundy’s, Mariano’s has got to be that vehicle,” one observer said.

The IPO would also allow Willis Stein & Partners, the Chicago-based investment firm that has owned 90% of Roundy’s stock since June 2002, to cash out some of its holdings — though Willis Stein will continue to own a majority of the shares, the company noted.

Roundy’s last week filed a registration statement for an IPO with the Securities and Exchange Commission, though it was unclear when the offering would actually take place, how the shares would be priced or how many shares would be issued. Observers told SN the IPO could take place before the end of the calendar year.

Roundy’s operates 158 stores, including 93 Pick ’n Saves and three upscale Metro Markets in Milwaukee and in eastern Wisconsin; 32 Rainbow Foods in Minneapolis; 26 Copps in the Madison, Wis., market; and the four Mariano’s Fresh Markets in Chicago, all of which have opened over the last 18 months.

Net income for Roundy’s in 2010 was $46.2 million, down 2.1% from $47.2 million in 2009. Through the first 39 weeks of 2011, net income was $38.9 million.

Sales in 2010 were $3.77 billion, up 0.6% from $3.75 billion in 2009. Through the first 39 weeks of 2011 sales were $2.9 billion, with comparable-store sales up 0.2%.

Roundy’s said it intends to use the proceeds from the offering, together with proceeds from a new debt refinancing transaction, to repay all outstanding debt under its existing credit facilities. Current debt amounts to $839 million, including $150 million borrowed early in 2010 to fund a dividend to Willis Stein.

Neil Stern, senior partner with McMillan Doolittle, Chicago, told SN he expects the IPO to be successful “because Roundy’s is a solid, stable company with good cash flow, which should make it attractive to potential investors.

“However, it’s not a hot IPO like Fresh Market was when it went public. Fresh Market had a very strong growth story going, whereas Roundy’s is simply holding its own in its core markets in Milwaukee and Minneapolis while its growth story is still playing out as it moves further into Chicago.”

The four Mariano’s stores in Chicago are doing well, Stern noted, “but Roundy’s still needs a lot of time, money and resources to succeed long-term in a market like Chicago, which has seen Byerly’s and Marsh fail there over the last few years.” A

ccording to Stern, Roundy’s was unsuccessful at finding a buyer for the company “most likely because of the capital environment today and the lack of strategic buyers out there.”

One industry observer said the pending IPO “certainly suggests that Willis Stein and possibly some of Roundy’s management who have assets tied up there are tired of waiting and want to get moving. The IPO will provide a liquidity event that will free them.

Chuck Cerankosky, an analyst with Northcoast Research, Cleveland, said the decision to do an IPO now should enable management to build the business “so that when the economy recovers, it can get a better value for the company.

“Roundy’s already has a very respected management team, which should help the valuation before and after the IPO. And after the offering, the stock would become a liquid asset that could be monetized at once or over several months or years.”

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