Is Supervalu Inc. (NYSE: SVU) Ripe For Buyout?


Supervalu Inc. (NYSE: SVU) has suffered so much in recent years amid challenging conditions in the retail space that some experts say that the value of the company has come down to the level that it now looks more attractive for opportunistic buyers.

In what suggests that conditions remain tough in the U.S. retail environment, Supervalu’s CEO, Mark Gross, recently issued a profit warning for fiscal 2017. He said that F2017 earnings will decline 5% below the earnings the company posted last year. Keep in mind that Supervalu originally expected earnings in F2017 to only drop 1.5%, thus the latest profit warning indicates deteriorating business conditions for the company.

Mr Gross admitted that the retail environment they are confronting at Supervalu Inc. (NYSE:SVU) is much more challenging than what they anticipated when they issued the original earnings guidance.

Hope for a brighter future

However, Supervalu’s CEO seems to believe that the prevailing tough retain conditions will be short-lived, especially as the company continues to realign its business model. Supervalu is trying to build itself more as a wholesale grocery distributor where it is seeking to do business with independent retailers in the grocery space. The wholesale business generates the bulk of Supervalu’s profits and cash flow. As such, success in that segment should dramatically alter the company’s fortunes for the better.

As part of the corporate reorganization, Supervalu Inc. (NYSE:SVU) is in the process of spinning off its grocery retail unit known as Save-A-Lot.

Takeover interest – Supervalu Inc. (NYSE:SVU)

However, not only will the sale of Save-A-Lot simplify Supervalu’s corporate structure and pave the way for rapid growth in the wholesale distribution business, but some analysts say the move could make Supervalu an interesting buyout candidate.

With the stock down nearly 30% so far in 2016 and a challenging retail environment, Supervalu is looking all the more affordable to potential acquirers.

Supervalu Inc. (NYSE:SVU)’s buyout is not a far-fetched dream. The company’s CEO Gross is himself an M&A specialist. Perhaps after he frees the company of its retail unit Save-A-Lot, next on the table would be a sale.


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