The Albertsons Cos. board of directors said it has begun a “review of potential strategic alternatives.”
In announcing the action late Monday, Boise, Idaho-based Albertsons didn’t provide details but reported that the move is “aimed at enhancing Albertsons’ growth and maximizing shareholder value.”
Albertsons, the nation’s second-largest supermarket operator, said it has retained Goldman Sachs and Credit Suisse as financial advisers for the review, which will gauge balance sheet optimization and capital return strategies, potential strategic or financial transactions, and development of other strategic initiatives to complement Albertsons’ existing businesses. The retailer said the review also will involve “responding to inquiries.”
“The board believes the continuing strength of our business and the scale of our portfolio of assets warrants a deep and considered review of all possible paths towards maximizing value creation,” Chan Galbato, Albertsons Cos. board co-chairman, said in a statement.
“Albertsons operates more than 2,270 stores across 34 states with growing digital and omnichannel capabilities, along with a vast dedicated manufacturing and distribution infrastructure, which have become integral to the fabric of communities across the U.S.,” Galbato explained. “The board believes that this review, coupled with an ongoing focus on accelerating our transformation strategy, will create enhanced value for all our stakeholders, including our customers, associates and investors.”
Albertsons noted that the board hasn’t set a timetable for the review or made any decisions on possible actions and strategies. The company said it doesn’t plan to comment further at this time, adding that “there can be no assurance that the review will result in any transaction or other strategic change or outcome.”
Through the end of its fiscal 2021 third quarter ended Dec. 4, Albertsons Cos. had 2,278 food and drug stores in 34 states and the District of Columbia under more than 20 banners, such as Albertsons, Safeway, Vons, Jewel-Osco, Shaw's, Acme, Tom Thumb, Randalls, United Supermarkets, Pavilions, Star Market, Haggen, Carrs, Kings Food Markets and Balducci's Food Lovers Market. The company also operates 1,722 pharmacies, 399 fuel centers, 22 distribution centers and 20 manufacturing facilities.
On the supermarket front, Albertsons' most recent acquisition was Kings Food Markets and Balducci’s Food Lover’s Markets in late 2020. The $94.6 million auction purchase of 27 stores in New York, New Jersey and Connecticut, by Albertsons' Acme Markets chain, came after Kings and Balducci's parent KB US Holdings put the stores up for sale upon filing for Chapter 11 bankruptcy protection.
"Albertsons Cos. announced a strategic review of its business, sending the shares up sharply and investors scrambling on what could happen next. The most likely outcome, in our view, would be divesting underperforming banners to accelerate investments in areas like supply chain, technology and e-commerce. This could keep Albertsons competitive among big-box retailers (e.g. Walmart, Target), club stores (e.g. Costco) and online retailers (e.g. Amazon), all of which we think have the upper hand when it comes to competing in this new world of omnichannel retailing," CFRA Research analyst Arun Sundaram said in a research note.
"While Albertsons could put itself up for sale, this scenario is unlikely, in our view, given antitrust concerns during a time where food prices are already high," Sundaram wrote. "Plus, Albertsons is likely valued at over $25 billion for financial buyers, a hefty price in a rising interest rate environment. Regardless of the outcome, this strategic review should be viewed favorably given the company's desire to transform its business before pandemic-related tailwinds fully abate."
For the third quarter, Albertsons saw net sales and other revenue climb 8.6% to $16.73 billion, with identical sales up 5.2% year over year and 17.5% on a two-year stack. Online sales rose 9%, bringing growth to 234% over two years. Adjusted net earnings per share also topped Wall Street’s consensus estimate by 20 cents.
“Our strong performance year-to-date and the continuing positive trends give us the confidence to raise the fiscal 2021 outlook for ID sales, adjusted EBITDA and EPS,” Albertsons Cos. CEO Vivek Sankaran told analysts in January when reporting Q3 results. Sankaran has served as the retailer’s chief executive since April 2019.
In its most recently completed fiscal year, Albertsons reported 2020 net sales and other revenue of $69.69 billion, up 11.6% and including surges of 16.9% in identical sales and 258% in e-commerce sales. Adjusted EPS for the year exceeded analysts’ average estimate by 29 cents.
Albertsons made its debut as public company on June 26, 2020, with an initial public offering of $16 per share for 50 million shares of common stock, or $800 million. That represented a downsized offering from when the company launched the IPO on June 18 of that year.
Two previous attempts by Albertsons to become public were unsuccessful. In 2018, the company attempted to go public via a $24 billion merger with Rite Aid Corp., but the deal was terminated after investor pushback. Investors also tried to take Albertsons public after its 2015 merger with Safeway but wound up pulling the offering due to market conditions for retail stocks.
Albertsons is owned by an investment group led by private equity firm Cerberus Capital Management. Currently, Cerberus is the top institutional shareholder, with a 32.5% stake, followed by Lubert-Adler Management Co. with a 12.44% share.
*Editor's Note: Article updated with analyst comment.