UNFI to Acquire SUPERVALU for $2.9B

Meagan McGinnes Jul. 26, 2018 at 5:49 PM

United Natural Foods, Inc. (UNFI) announced today that it will acquire grocery retailer and wholesaler SUPERVALU for $2.9 billion, including debt. Through this deal, the company said it expects to see combined net sales of more than $21 billion.

“This transaction accelerates UNFI’s ‘Build out the Store’ growth strategy by immediately enhancing our product range, equipping us to bring an attractive, comprehensive product portfolio to an expanded universe of customers,” Steve Spinner, UNFI’s chairman and CEO, said via a release. “Combining our leading position in natural and organic foods with Supervalu’s presence in fast-turning products makes us the partner of choice for a broader range of customers.”

Spinner will lead the combined company, with Sean Griffin, UNFI COO, overseeing the SUPERVALU integration.

In recent years, SUPERVALU evolved to focus more on its wholesale business, which includes fresh produce and private label products as well as bakery and grocery items. The company had already sold most of its brick-and-mortar operations, and UNFI said it plans to gradually divest itself of the rest of SUPERVALU’s retail assets — roughly 200 stores — “in a thoughtful and economic manner.”

In addition to gaining 29 distribution centers, the deal is expected to aid UNFI’s expansion into new markets and categories as well as with new consumers, executives explained during a conference call with investors this morning. SUPERVALU customers will benefit as well, the company said. UNFI’s current offerings will allow the wholesaler to provide “better-for-you” products to its more than 1,800 conventional grocery customers that are seeing a growing demand for such items.

Currently the largest distributor for Whole Foods Market, UNFI is a strong player in the natural channel. However, the future relationship between the retailer and distributor — beyond its current $22 billion in future purchases agreement that ends in 2025 — became less clear after the retailer was acquired by Amazon last year. Today’s acquisition is the distributor’s attempt to diversify itself.

The sale of the company was expected by many of SUPERVALU’s investors, who had been calling on the retailer to explore a sale and improve its performance. According to its most recent earnings report published today, SUPERVALU saw 35 percent growth to its net sales in the last quarter, but still was faced with a net loss of $27 million and total outstanding net debt, including capital leases, of $1.56 billion.

Today’s news comes amid a whirlwind of strategic retail partnership announcements. Earlier this week alone, KeHE Distributors LLC announced it renewed its agreement with Sprouts Farmers Market (SFM) as its primary distribution partner through the year 2025.

To learn more about the acquisition, read the press release below:

UNFI To Acquire SUPERVALU In Transformative Combination Creating North America’s Premier Food Wholesaler

PROVIDENCE, R.I. and MINNEAPOLIS — United Natural Foods, Inc. (NASDAQ: UNFI) and SUPERVALU INC. (NYSE: SVU) today announced that they have entered into a definitive agreement under which UNFI will acquire SUPERVALU for $32.50 per share in cash, or approximately $2.9 billion, including the assumption of outstanding debt and liabilities.

“This transaction accelerates UNFI’s “Build out the Store” growth strategy by immediately enhancing our product range, equipping us to bring an attractive, comprehensive product portfolio to an expanded universe of customers,” said Steve Spinner, UNFI’s Chief Executive Officer and Chairman. “Combining our leading position in natural and organic foods with SUPERVALU’s presence in fast-turning products makes us the partner of choice for a broader range of customers. Together, we can provide our “better for you” products as well as other high-growth segments, improving customers’ competitive advantages in a dynamic marketplace. These benefits, plus our increased efficiency and productivity, will enable us to create value for our shareholders, enhance opportunities for our suppliers, provide a broader assortment for our customers and create new prospects for our associates over the long term.”

“The combination of UNFI and SUPERVALU provides a substantial premium and delivers certainty of value to our stockholders, meaningful benefits to our customers, expanded opportunities for our employees, and the ability for us and our vendors to efficiently serve a varied customer base,” said Mark Gross, SUPERVALU’s Chief Executive Officer. “We have been executing an ambitious strategic transformation for over two years. We believe that this transaction is the best and natural next step for our stockholders, customers and employees. I am very proud of the unwavering commitment and focus of our employees in driving our strategic transformation and serving our customers. I am confident that, together, SUPERVALU and UNFI will be well positioned to succeed – and to help our customers succeed – in today’s grocery landscape.”

Compelling Strategic and Financial Benefits

Diversifies customer base: The transaction will greatly expand UNFI’s customer base and exposure across channels, including those where demand for “better for you” products is increasing and UNFI is under-represented. It will also unlock new opportunities through a comprehensive product portfolio.
Enables cross-selling opportunities: UNFI will benefit from its ability to deliver comprehensive and expanded offerings, including the addition of high-growth perimeter categories such as meat and produce to UNFI’s natural and organic products.
Expands market reach and scale: The wider geographic reach and greater scale of the combined entity is expected to increase efficiencies and effectiveness.
Enhances technology, capacity and systems: The combined entity plans to leverage scalable systems to streamline its processes, more efficiently meet the needs of its customers and reduce future capital expenditures.
Delivers significant synergies: Through this combination, UNFI will be positioned to realize run rate cost synergies of more than $175 million by year 3.
Accelerating growth: After year one, the transaction is projected to be accretive to Adjusted EPS in year 1 with double-digit Adjusted EPS growth after year 1, excluding one-time costs.

Governance

UNFI Chief Executive Officer and Chairman Steven Spinner will lead the combined entity. Sean Griffin, UNFI Chief Operating Officer, will lead the SUPERVALU integration efforts, post close and lead an integration committee comprised of executives from both companies to drive the implementation of best practices from each company and the delivery of important synergies and a rapid and smooth integration.

Transaction Details

UNFI expects to finance the transaction substantially with debt and Goldman Sachs provided committed financing in the transaction.
Over time, UNFI plans to divest SUPERVALU retail assets in a thoughtful and economic manner.
Upon closing, UNFI’s net debt-to-EBITDA ratio is expected to be high. With strong cash flows, proceeds from divestitures and commitment to reducing debt, the company anticipates reducing leverage by at least two full turns in the first three years.
The transaction has been approved by the boards of directors of both companies and is subject to antitrust approvals, SUPERVALU shareholder approval and other customary closing conditions, and is expected to close in the fourth quarter of calendar year 2018.

Advisors

Goldman Sachs and Foros acted as financial advisors, and Skadden, Arps, Slate, Meagher & Flom LLP and Jones Day LLP acted as legal counsel to UNFI. Barclays and Lazard acted as financial advisors and Wachtell Lipton Rosen & Katz LLP acted as legal counsel to SUPERVALU.

About UNFI

UNFI delivers healthier food options to people throughout the United States and Canada. UNFI distributes over 110,000 products to more than 43,000 customer locations including natural product superstores, independent retailers, conventional supermarket chains, ecommerce retailers, and food service customers. Recognized as one of the most effectively managed U.S. companies, UNFI was named in the “Management Top 250” list by the Wall Street Journal in 2017. To learn more about how UNFI is Moving Food Forward, visit www.unfi.com.

About SUPERVALU

SUPERVALU INC. is one of the largest grocery wholesalers and retailers in the U.S. with fiscal 2018 annual sales of approximately $14 billion. SUPERVALU serves customers across the United States through a network of 3,437 stores composed of 3,323 wholesale primary stores operated by customers serviced by SUPERVALU’s food distribution business and 114 traditional retail grocery stores in continuing operations operated under three retail banners in three geographic regions (store counts as of February 24, 2018). Headquartered in Minnesota, SUPERVALU has approximately 23,000 employees (in continuing operations). For more information about SUPERVALU visit www.supervalu.com.