Sponsored By

Supervalu eyes shift to holding company structure

Board says move would spur transformation by separating wholesale, retail

Russell Redman

June 13, 2018

4 Min Read
Supermarket News logo in a gray background | Supermarket News

Supervalu Inc. has proposed a reorganization into a holding company structure that will separate its grocery wholesale and retail operations.

Minneapolis-based Supervalu said late Tuesday that the move would provide more flexibility in its ongoing strategic transformation, which includes plans to divest retail assets and sharpen its focus on growing its core food wholesale business. The restructuring also would bring operational efficiencies and “better segregate the liabilities of the company into their respective business segments,” according to Supervalu.

Another plus would be on the tax side, Supervalu said, explaining that the plan would better enable the company to leverage its capital loss carryforward and generate about $300 million in cash tax benefits over the next 15 years.

The Supervalu board of directors decided to pursue the reorganization in a June 7 meeting and outlined the plan in a preliminary proxy statement and prospectus filed yesterday with the Securities and Exchange Commission. A stockholder vote on the proposal is slated to be held at the company’s 2018 annual shareholders meeting.

Mark_Gross_Supervalu_CEO_0.png“We have been executing a strategic transformation of our business over the last two years to become the wholesale supplier of choice for grocery retailers across the United States, while also executing initiatives to deliver long-term stockholder value,” President and CEO Mark Gross (left) said in a statement. “The proposed holding company structure is another significant and important undertaking by our team that would support and advance our transformation by further separating our wholesale and retail operations in a tax efficient manner.”

Struggling to compete with larger grocery companies and fast-growing online players, Supervalu has been revamping its business to bolster wholesale operations and firm up its financial footing. Food wholesale now accounts for the lion’s share of the company’s revenue: 78% of total sales in fiscal 2018, up from about 44% only two years ago. Supervalu’s wholesale arm serves a network of 3,437 stores, including 3,323 stores operated by its food distribution customers.

Steps forward in the company’s transformation have included new leadership; the sale of Save-A-Lot for $1.3 billion in 2016; new wholesale customers such as The Fresh Market; last year’s acquisitions of Unified Grocers and Associated Grocers of Florida; and the divestiture of supermarket retail assets, most recently the Farm Fresh chain last month.

In April, Supervalu unveiled plans to sell off the Shop ‘n Save grocery chain and to sell and lease back eight of its owned distribution centers in a $483 million deal, which was largely completed in early May. The divestiture of Farm Fresh and Shop ‘n Save will leave Supervalu with 114 supermarkets under three banners: Cub Foods, Hornbacher’s and Shoppers.

Supervalu_HQ_distributioncenter.pngGoing forward, Supervalu said, the proposed holding company structure would facilitate the sale of retail assets and provide other advantages as it refocuses its business.

“We believe the reorganization could facilitate expansion of our wholesale business by providing a more flexible structure for acquiring other businesses or entering into joint ventures while continuing to keep the operations and risks of our retail business separate,” Supervalu stated in the June 12 proxy statement/prospectus. “In addition, if the cash generated over time by our businesses were determined by our board to be greater than the amount necessary for the operation or capital needs of those businesses, this cash could be transferred to a separate corporate entity owned by the holding company and invested as our board believes to be appropriate.”

In the SEC filing, Supervalu also urged shareholders not to support board members nominated by Blackwells Capital, which in late March had initiated a proxy battle as part of a months-long effort to get Supervalu to expedite its restructuring. The New York-based investment firm has called for Supervalu to explore such options as a sale/leaseback of its distribution centers, a sale of the company or a merger with a wholesaler competitor, and a spin-off of its retail operations, among other measures.

Blackwells in late May reported its stake in Supervalu at about 7.3% (including 2.9% in underlying call options). The investment firm has nominated six candidates to Supervalu’s board and filed preliminary proxy materials for their election. Also late last month, D3 Family Funds, which holds a 1.4% interest Supervalu, said it aims to vote all of its shares for the six-director slate nominated by Blackwells.

“It is becoming increasingly apparent that the combination of growing Supervalu’s wholesale grocery business organically and inorganically, divesting most of the company’s retail grocery stores, and selling and leasing back its distribution centers to pay down debt has the potential to catapult Supervalu’s share price,” D3 founder and managing partner David Nierenberg said in announcing the endorsement of Blackwells’ nominations. “With the right board in place, with the right urgency, accountability, and serious skin in the game, we believe that Supervalu management could have the time and the support it needs to execute that strategy.”

About the Author

Russell Redman

Senior Editor
Supermarket News

Russell Redman has served as senior editor at Supermarket News since April 2018, his second tour with the publication. In his current role, he handles daily news coverage for the SN website and contributes news and features for the print magazine, as well as participates in special projects, podcasts and webinars and attends industry events. Russ joined SN from Racher Press Inc.’s Chain Drug Review and Mass Market Retailers magazines, where he served as desk/online editor for more than nine years, covering the food/drug/mass retail sector. 

Russell Redman’s more than 30 years of experience in journalism span a range of editorial manager, editor, reporter/writer and digital roles at a variety of publications and websites covering a breadth of industries, including retailing, pharmacy/health care, IT, digital home, financial technology, financial services, real estate/commercial property, pro audio/video and film. He started his career in 1989 as a local news reporter and editor, covering community news and politics in Long Island, N.Y. His background also includes an earlier stint at Supermarket News as center store editor and then financial editor in the mid-1990s. Russ holds a B.A. in journalism (minor in political science) from Hofstra University, where he also earned a certificate in digital/social media marketing in November 2016.

Russell Redman’s experience:

Supermarket News - Informa
Senior Editor 
April 2018 - present

Chain Drug Review/Mass Market Retailers - Racher Press
Desk/Online Editor 
Sept. 2008 - March 2018

CRN magazine - CMP Media
Managing Editor
May 2000 - June 2007

Bank Systems & Technology - Miller Freeman
Executive Editor/Managing Editor
Dec. 1996 - May 2000

Supermarket News - Fairchild Publications
Financial Editor/Associate Editor
April 1995 - Dec. 1996 

Shopping Centers Today Magazine - ICSC 
Desk Editor/Assistant Editor
Dec. 1992 - April 1995

Testa Communications
Assistant Editor/Contributing Editor (Music & Sound Retailer, Post, Producer, Sound & Communications and DJ Times magazines)
Jan. 1991 - Dec. 1992 

American Banker/Bond Buyer
Copy Editor
Oct. 1990 - Jan. 1991 

This Week newspaper - Chanry Communications
Reporter/Editor
May 1989 - July 1990

Stay up-to-date on the latest food retail news and trends
Subscribe to free eNewsletters from Supermarket News

You May Also Like