After gobbling up one of its biggest competitors earlier this year, Albertsons Companies Inc. is now pursuing an IPO. The Boise, Idaho-based company filed a registration statement with the Securities and Exchange Commission to sell shares of its common stock.
Although the number of shares to be offered and the price range for the proposed offering have not yet been determined, the chain indicated it would raise $100 million through the IPO. However, that number is most certainly a placeholder, and Albertsons could end up raising more or less, depending on investor interest. The company plans to use the proceeds from its IPO to pay down debt and invest in-store operations, according to SEC filings.
Albertsons’ SEC filings did not identify did not identify the stock exchange on which it will list its shares, nor did it disclose a requested ticker symbol. Over the past few years, several grocery chains have gone public including: Fairway Group Holdings Corp., Roundy’s Inc. and Sprouts Farmers Market Inc.
Albertsons Companies operates stores across 33 states and the District of Columbia under 18 banners, including Albertsons, Safeway, Vons, Jewel-Osco, Shaw’s, Acme, Tom Thumb, Randalls, United Supermarkets, Pavilions, Star Market and Carrs.
“The chains that went public over the past few years were selling a growth story,” notes Andy Couch, managing director of supermarket advisory services for DJM Real Estate, a division of Gordon Brothers Group Co. “Albertson’s has a little bit of a different story—one that’s refreshingly realistic—and I think that’s going to appeal to investors.”
Creating the second-largest grocery chain
A private equity consortium led by Cerberus Capital Management owns Albertsons Companies, having cobbled together the existing chain through a series of acquisitions over the past nine years. In 2006, Cerberus and its partners acquired about 650 struggling Albertsons stores, while Supervalu Inc. acquired the remaining stores from the original chain.
As part of a restructuring strategy, the private equity group closed the majority of the stores it bought and began to revive the existing Albertsons chain. In 2013, a group of investors led by Cerberus brought all Albertsons stores back under a single owner by buying out Minnesota-based Supervalu in a $3.3 billion deal. Supervalu operated Albertsons, Acme, Jewel-Osco, Shaw’s and Star Market banners.
Cerberus continued to make bets in the grocery space with its $9.4 billion deal to acquire Safeway earlier this year. The acquisition created the second-largest grocery chain behind Kroger, which acquired the Harris Teeter Supermarkets chain in the Southeast last year for about $2.5 billion.
Today, Albertsons operates roughly 2,200 stores. It posted a loss of $1.2 billion on $27.2 billion in sales last year. On a pro forma basis (which includes Safeway performance and strips out certain merger-related charges), it would have lost $385 million and reported $57.5 billion in sales. It also is burdened by roughly $12 billion in debt.
“The IPO announcement isn’t a surprise,” Couch says. “Private equity groups typically have a short-term horizon, and Cerberus has held Albertsons for a long time, from a private equity standpoint.”
Couch notes that Albertsons management team has successfully executed a plan to improve store operations, customer service, and merchandise selection. “The funds from the IPO will allow the company to continue with its strategy,” he says.
Albertsons hasn’t indicated that it plans to use any of its IPO proceeds to open new stores. “They’re a traditional grocery chain, and there aren’t a lot of those stores being built right now,” Couch points out. “If they said they planned to open 200 new stores, that would be hard for anyone to believe or buy into.”
Positioned to be an acquirer
However, the IPO could put Albertsons in a good position to acquire existing chains, says one grocery expert who has extensive knowledge of both Albertsons and Safeway. “Being public gives a company a constant source of capital,” he points out. “It makes the company’s capital structure that much stronger and flexible.”
And that’s good news for landlords, Couch says, because it means their grocery anchor will be financially healthier. That in turn means that owners can get mortgages on their properties at lower interest rates.
Grocery experts expect significant consolidation to occur within the sector over the next couple of years. Albertsons IPO announcement comes just weeks after Netherlands-based Koninklijke Ahold and Belgium-based Delhaize Group agreed to a $29.5 billion merger. Both companies have a significant U.S. presence, operating under banners that include Giant, Stop & Shop, Food Lion, and Hannaford Bros. Together, the two companies will operate more than 6,500 stores.
Goldman, Sachs & Co., BofA Merrill Lynch, Citigroup, and Morgan Stanley are acting as joint book-running managers for the Albertsons IPO, and Lazard is acting as a co-manager and IPO advisor for the proposed offering.