Albertsons Refiles IPO Prospectus; Could Become Public Company By Mid-2016
After having to delay its planned mid-October IPO launch due to the volatility of the financial markets, Albertsons Companies filed an amended S-1 stock prospectus form on November 23, indicating it would resume its effort to take the Cerberus Capital Management controlled supermarket chain public.
Financial sources told us that it is likely that Albertsons would have to conduct another “road show” with analysts early next year and that if all goes well, it could become a publicly-traded company in the first half of 2016.
The original road show went very well, according to several sources. To that extent, Albertsons believed it had successfully sold its offering by the middle of October. However, at almost that same time, Wal-Mart, at its annual investors’ day, told analysts that earnings would be pressured due competition and its planned major investment into its digital portfolio. That news not only significantly reduced Wal-Mart’s market cap, it adversely impacted most of the publicly-traded retailers in several industries.
Albertsons new prospectus is virtually the same as the original one filed in early July. The Boise, ID-based retailer expects to price its 5.3 million shares at $23-$26 per share with an overallotment of an additional 9.8 million shares. If all shares available were sold at the top end of the price spectrum, the offering would raise approximately $1.95 billion.
Albertsons intends to list its shares on the New York Stock Exchange under the symbol ABS.
In describing its finances in the prospectus, Albertsons said: “For fiscal 2014 on a pro forma basis, we would have generated net sales of $57.5 billion, Adjusted EBITDA of $2.4 billion and free cash flow (which we define as Adjusted EBITDA less capital expenditures) of $1.5 billion. For the 12 months ended June 20, 2015, on a pro forma basis, we would have generated net sales of $57.9 billion, Adjusted EBITDA of $2.5 billion and free cash flow of $1.7 billion. For the first quarter of fiscal 2015, we generated net sales of $18.1 billion, Adjusted EBITDA of $728 million and free cash flow of $513 million. In addition to realizing increased sales, profitability and free cash flow through the implementation of our operating playbook, we expect synergies from the Safeway acquisition to enhance our profitability and free cash flow over the next few years.”
Albertsons said it intends to use the net proceeds from this offering to repay certain existing debt, to pay fees and expenses related to this offering and for general corporate purposes.
Also of note in the prospectus, was the news that none of its existing shareholders, including principal equity partner Cerberus Capital Management, would sell any of their holdings. Those entities would continue to control about 80 percent of the shares of the new publicly-traded company.
Cerberus and its partners have been building the grocery chain through a series of deals since 2006, including its merger earlier this year with Safeway, which made it the second largest conventional grocery in the country after Kroger, with annual sales of $57.5 (that total has increased with the acquisition of 71 former A&P stores) billion at its 2,300 stores throughout the U.S.
By Any Measure, It Was Another Spectacular Quarter For Kroger
Kroger’s achievements over the past five years are nothing short of incredible, especially when you consider the competitive and economic challenges all food retailers have faced in recent years.
Like a metronome, Kroger continued its torrid pace by posting third quarter earnings of $428 million (a 23 percent gain) and a same store sales increase of 5.4 percent (excluding fuel) for the period ended November 7. That latter number marked the 48th consecutive quarter that the Cincinnati, OH-based juggernaut has produced positive same store revenue, an astounding figure. Not surprisingly, its stock price has surged over the past five years (in December 2011, Kroger shares were trading at approximately $10.30 per share; Kroger’s current share price is in the $41 range which includes a 2-for-1 stock split earlier this year).
On so many levels, Kroger has adapted to the many changes the industry has seen over the past decade. It combines a very high level of consistency at store level – no easy task when employing more than 400,000 associates and operating 2,600 supermarkets nationally with customer-focused research and a dynamic leadership team that seemingly is devoid of egos and who truly want to sell more stuff.
And here’s an additional differentiator: although primarily centralized, Kroger has been able to utilize its agility and nimbleness at its 21 operating division’s that allows local managers to remain creative and competitive as conditions in specific markets change. As competitive examples, that “localized” approach is one that is now being integrated into Albertsons 13 operating divisions, while Ahold USA, which touts the flexibility of its four operating divisions, has struggled to achieve that individuality.
For its fourth quarter, Kroger expects ID sales growth (excluding fuel) of 4.0-4.5 percent and is targeting a fiscal 2016 growth rate of approximately 5.0-5.25 percent.
With very manageable debt and strong cash flow, Kroger has made no bones about pursuing acquisitions. In 2014, it purchased Harris Teeter for $2.44 billion. Thus far, the marriage has worked wonderfully with Kroger allowing the upscale Mid-Atlantic and Southeast chain to remain largely autonomous.
Kroger’s recent $800 million acquisition of Roundy’s presents a different type of challenge. Unlike HT, Roundy’s has struggled in recent years with its core supermarkets in Wisconsin, while investing heavily (and not yet profitably) in its expansion in the Chicago market (Roundy’s posted a $9 million loss for its most recent operating period ended October 3).
Having witnessed Kroger successfully turn around its business in Richmond and Tidewater, I’m confident that it can improve Roundy’s core supermarkets in the Badger State – Pick ‘n Save, Copps and Metro Market – by instilling focused operational discipline, leveraging its buying power and providing improved data that will ultimately make the shopping experience at those conventional supermarkets better.
A key component of the deal was retaining Roundy’s CEO Bob Mariano, whose talent has helped Roundy’s become an emerging force in the Chicago market with the company’s eclectic Mariano’s supermarket concept. With Mariano’s vision and Kroger’s corporate expertise and deep pockets, this is where the partnership could pay big dividends.
Based on its current growth rate, achieving $60 a share is certainly possible. An incredible story in an industry where successes are usually measured with a thimble.
‘Round The Trade
One of the good ones who escaped from the A&P asylum is back in the mainstream. After serving as the Tea Company’s chief executive from 2005-2009, Eric Claus has emerged as the new CEO of Save-A-Lot. Claus, 59, will join the Supervalu unit early next month. He most recently served as chairman and CEO of Red Apple Stores, a Canadian-based chain of value retail stores. Ritchie Casteel, the current Save-A-Lot CEO, will remain with the company as president and will report to Claus, Supervalu added. Casteel will continue to oversee day-to-day store operations while working with Claus on Save-A-Lot’s market development, store growth plans and preparation for the possible IPO spin-off or sale of its extreme value unit. “I’m very pleased that Eric is joining our Supervalu team to serve as CEO of Save-A-Lot,” said Supervalu CEO Sam Duncan, who will be leaving the company in February. “He has a great background in food retailing, and is a smart and charismatic leader. His strengths in and experience with the hard discount format as well as his history leading retail companies will be important as we look to finish our fiscal year strong and as we continue to position Save-A-Lot for the future.” Born in Canada, Claus has more than 30 years of retail experience including serving as president of A&P-Canada in 2002 and as CEO of the entire Tea Company in 2005. He exited in 2009 after Pathmark gained control of the chain. I can attest that Eric Claus is the real deal. He was the only A&P CEO in the past 40 years who actually tried to implement positive change by upgrading stores, opening communications and improving the culture. Clearly, that wasn’t the skill set that the morons at Yucaipa were looking for. As Claus enters the Supervalu ring, veteran Janel Haugarth is exiting. Haugarth, who has been with the Eden Prairie, MN-based wholesaler/retailer for nearly 40 years, departs as EVP and president of the SVU’s independent business and supply chain services. She will be replaced by Mike Stigers, current president of Supervalu’s Cub Foods unit (he also served as president of Shaw’s). It’s becoming pretty clear that the dynamics and culture are changing at Supervalu. The organization is really going to miss Sam Duncan who led a historical turnaround in the three years he’s been CEO and, with SVU eyeing a Save-A-Lot IPO or sale, the company will ultimately be much smaller. Several observers have openly asked how much longer Casteel will be part of the equation (he was a Duncan appointee) and Haugarth was one of the few management holdovers for the glory days of SVU (and the inglorious ones, too) who arguably supervised the company’s most valuable component…not surprisingly the Federal Trade Commission (FTC) has made a “second request” for more information from Walgreens and Rite Aid concerning Walgreens’ attempted $9.4 billion acquisition of Rite Aid which was announced in late October. While this procedure is fairly standard, there certainly will be some red flags raised when it comes to store overlaps and market concentration. Those concerns were also noted by Scott Mushkin, analyst for Wolfe Research in New York, who stated in a recent report that the deal “seems to go against the spirit of antitrust laws in the U.S.” He cited four reasons why the planned deal might be in trouble: “it appears to create significant market concentration; it unilaterally reduces competition; it would create a reduction of choices for both drug plans and consumers; and (it would create) the potential for a significant transfer of wealth from drug makers to the combined company.” Walgreens already stated that it might have to divest as many as 1,000 stores, but still expects the deal to be completed in the second half of next year…Wal-Mart reported that third quarter comp stores sales at its U.S. store increased 1.5 percent (excluding fuel), marking the fifth consecutive quarter that same store revenue has risen at its domestic units. Overall, the Behemoth posted an 8.8 percent decline in earnings. Total company revenue for the period ended October 31 was $117.4 billion. I’m still hearing that the Bentonville, AR merchant is putting the screws to its vendors in attempt to gain more trade funding. While Wal-Mart claims these additional trade dollars would be used to lower retail costs, many suppliers believe the pressure is building internally because the world’s largest retailer is attempting to subsidize the huge costs associated with raising its minimum wage to $9 an hour for all associates…The Fresh Market’s (TFM) new CEO Rick Anicetti revealed to financial analysts his approach to improve the company’s recently flagging results. Drawing upon his experience from the conventional supermarket world (he was formerly chief executive of Food Lion), Anicetti, who joined the 168 store retailer in late September, noted that margins could be enhanced by 2-3 percent by focusing on labor and shrink and also by concentrating on promoting fewer items. He added that pricing will be a big component of TFM’s new arsenal and it will establish KVIs (Key Value Items) and implement zone pricing. “The Fresh Market is a unique brand with enormous untapped potential and I am excited about the opportunity to guide the company’s future direction,” Anicetti said in a statement. “As our management team and board conduct a comprehensive strategic and financial review of the business, we are simultaneously moving forward aggressively with a number of initiatives to strengthen our foundation, increase productivity, drive store traffic, and regain operating momentum. With the holiday season fast approaching, we are making changes as quickly as prudently possible to our productivity, price optimization and brand differentiation to help stabilize traffic trends and drive sales during this key shopping period,” he added. As for its third quarter results, the Greensboro, NC-based upscale merchant reported total sales of $433.1 million, an increase of 3.3 percent from the same period last year, while comp store sales dipped 3.7 percent and traffic also decreased 3.7 percent. Net earnings were $10 million, a significant decline of 32.9 percent from the corresponding quarter last year. Additionally, COO Sean Crane, who stepped in earlier this year as interim chief executive when former CEO Craig Carlock exited, has also left the company. And there has been no further word on the progress of TFM founder and board chairman Ray Berry, who led the company’s effort to go public in 2010 and who still owns a 4.1 percent stake in the merchant, to take the company private again. There are a lot of moving parts at the struggling company and we’ll keep you posted as we learn more…a special note of recognition to Alan Wilson, CEO of McCormick & Co., who will be stepping down from his leadership post on February 1 after eight years at the helm (although he will remain executive chairman of the board). He will be replaced by Lawrence Kurzius, currently president and COO of the Sparks, MD-based spicemaker. Not only was Wilson’s performance excellent when measuring core metrics such as financial results and, acquisitions, he also provided a continuation of the strong leadership that McCormick has enjoyed for many years. I had the opportunity to sit with Alan after he addressed students at St. Joseph University’s Academy of Food Marketing last year. Not surprisingly, his intellect is off the charts, but his candor and selfless perspective about his specific role at McCormick was also refreshing. One thing that I clearly recall was his mindset about the chief executive job. He believed that these high pressured jobs have a shelf life of no more than 10 years, noting that new blood is needed to spawn new ideas and potentially re-energize the culture…just before presstime, we learned that Christopher Baldwin will become CEO of BJ’s Wholesale Club, effective February 1. Baldwin, who just joined the Natick, MA-based club retailer in August, will succeed Laura Sen, who will become the company’s non-executive chairman on th
at same date. Sen has been with BJ’s for more than 25 years and was named chief executive in 2009. Baldwin, who previously toiled for P&G, Hershey and Nabisco, joined BJ’s from Hess Retail where he was CEO. The large club merchant is owed by private equity firms CVC Capital Partners and Leonard Green & Associates…Wegmans is continuing its New England expansion. The uber-retailer will build a new supermarket in the Boston suburb of Medford, MA, joining its four existing stores in Northborough, Newton, Burlington and Westwood. Another new Wegmans is slated for Natick, MA and the big regional chain is close to inking a deal near Fenway Park. We’re also hearing that Wegmans is close to finalizing a new store in the Walter Reed Hospital redevelopment in Washington, DC and has been reportedly eyeing sights as far south as Raleigh, NC. In the past two months, the company has opened a new store in Concordville, PA and announced it will be building another new store in Lancaster, PA. Next year, Wegmans plans to open four new units – in Owings Mills, MD and in three new Virginia locales, two in the Richmond area and another in the college city of Charlottesville.
Local Notes
C&S Wholesale Grocers will spend at least $15 million to expand its current distribution center network in the Lehigh Valley region of Pennsylvania. About 600 people will be hired to work in the 265,000 square foot former Walgreens warehouse in Bethlehem, PA. C&S operates three other distribution centers in the region. C&S will utilize its existing Lehigh Valley facilities to supply Safeway’s 125 eastern division stores when Safeway’s existing distribution center in Upper Marlboro, MD closes this month (C&S has managed and supplied those stores from that facility since 2000, but parent company Albertsons actually owns the depot). In addition to servicing Safeway’s general merchandise needs from Bethlehem, other current C&S distribution centers in North East, MD (perishables) and York, PA (grocery) will also supply Safeway’s Baltimore-Washington stores…Ahold and Delhaize Group announced its new proposed executive committee effective upon completion of the proposed merger of the two large European retailers who have substantial U.S. holdings. The merger is expected to become official in the second quarter of 2016. Board members will include CEO Dick Boer; deputy CEO and chief integration officer Frans Muller; CFO Jeff Carr; COO-Europe Pierre Bouchut; COO-USA Kevin Holt; COO-USA James McCann; chief sustainability, transformation and communications officer Marc Croonen; chief ecommerce and innovation officer Hannaka Faber; chief legal officer Jan Ernst de Groot; and chief human resources officer Abbe Luersman. The management board will be responsible for the overall management and decision making for the new company and will have fiduciary responsibility towards the supervisory board and shareholders. The future executive committee will be charged with the day-to-day management of the company. Ahold USA has also announced some merchandising department operational changes. Effective January 4, AUSA will utilize SAS Retail Services to develop an in-store activation program which is designed to improve new items’ speed-to-shelf, plan-o-gram activation and refresh/remodel execution to its commercial organization and its entire store network. The Carlisle, PA based retailer will begin implementing a new long-term manufacturer out-of-stock policy for all national brand suppliers. This new policy will supplement AUSA’s product discontinuation policies and is essentially a warning and find system that national brand manufacturers will be responsible for if they are out of compliance. And just before presstime, we learned that the Northeast’s largest supermarket retailer will be working with Interactions, a unit of Daymon Worldwide to create the company’s own in-store selling and sampling program. Interactions will manage and execute AUSA’s in-store demos, sampling programs and special events and will begin on March 1. At its Giant/Landover unit, AUSA will be closing its pharmacy distribution warehouse in Baltimore County effective at the end of next month. The cuts were prompted by Giant’s decision to expand its existing relationship with pharmaceutical distributor McKesson Corp. About 89 associates will be impacted. Also closing will be three Martin’s Food Markets (Giant/Carlisle) in the Richmond market – Mechanicsville, Petersburg and Richmond – next summer. According to Ahold USA, all three leases were set to expire, “and a business decision was made not to extend the leases.” Martin’s has struggled in the Richmond market ever since acquiring 28 Ukrop’s stores in 2010. A bigger impact than closing three underperforming stores will be the FTC’s decision concerning store overlaps between Martin’s and Food Lion. The Richmond area is the most concentrated of all markets for the soon-to-be-merged Ahold and Delhaize organizations, as they await a ruling from the FTC on all store conflicts, which could come early next year…I had an opportunity to meet Bob Striano recently and was very impressed with his intelligence, personality and keen understanding of the grocery business. As the new CEO of Associated Food Holdings LLC, he’ll certainly bring stability and leadership to one of Metro New York’s largest independent groups and represents a significant upgrade over his predecessor Bob “The Alienator” Sigel. We wish Bob Striano and Andy Unanue, managing partner and chairman of AUA Private Equity Investors LLC (which owns Associated), good luck as they attempt to grow the business of their more than 300 Met Foods, Associated, Compare, Pioneer, MetFresh and Metropolitan Citymarkets independent retailers…kudos also to Rich Durante on being named president and COO of Kings Food Markets. Rich began his career with the Parsippany, NJ-based regional chain as a store manager in 1988 and has worked in virtually every aspect of the upscale merchant’s business. CEO Judy Spires, who herself was recently elevated to chairman, and the board (at AG Supermarket Holdings, the PE firm that owns Kings), made a wise choice in promoting one of the hardest working good guys in the business. While I’m at it, a couple more tips of the hat to two of my industry buddies from the other side of the desk – Stanley Pearlman and Mark Tarzwell. Pearlman, CEO of NAFCO and Congressional Seafood, has relocated his distribution center and corporate headquarters to a free-standing location near his old warehouse in the Maryland Wholesale Seafood Market in Jessup, MD. The new 88,000 square foot facility is a beautifully designed, state-of-the-art warehouse focusing on food safety and seafood sustainability. Tarzwell, who has had many high profile industry jobs in a 45-year grocery career, was recently named COO of Ateeco, Inc., maker of Mrs. T’s Pierogies. He will report directly to president Tom Twardzik…John Boyle has joined Natural Markets Food Group (NMFG), the Canadian firm which owns Mrs. Green’s, as its new chief merchandising officer. The former Haggen, Supervalu and Albertsons exec was most recently with New Seasons Market, Portland OR, which was also the last pit stop for CEO Tim Brown before he was recruited to lead the struggling Mrs. Green’s operation about 18 months ago…it’s been pretty impressive to watch the “before and after” versions of many of the former A&P stores that were closed and subsequently reopened by new operators. Although I haven’t toured all of the acquiring retailers’ revamped units, I can attest that all of stores I have visited are in significantly better condition than the craphouses they had been before they were purchased. Companies whose upgrades were particularly notable included Acme Markets (71 stores, all of which were converted in seven weeks); Stop & Shop (25 stores – all converted within a month); Key Food (25 stores, also converted within a month) and Foodtown (five stores). Other multiple-store A&P buyers such as Wakefern (13 stores), Best Yet (nine stores) and Bogopa (five stores) are currently working on their remodelings and will open their stores next year. In related matters, we’re hearing that Acme might add a handful of A&P units (including liquor stores) to its portfolio, including the Tea Company unit in Boonton, NJ…Village Super Markets reported an earnings increase of 14.3 percent while both total and comp store sales rose 2.6 percent in its first quarter ended October 24. The Springfield, NJ-based operator of 29 stores attributed the revenue increase to larger replacement stores in Morristown and Union, NJ and the expansion of its Sterling, NJ ShopRite. However, when earnings were adjusted for charges a year ago, profits declined 21 percent due to higher operating and administrative expense the publicly-traded merchant disclosed…just before presstime, we learned that private equity firm Arbor Investments has acquired a majority equity stake in DPI Specialty Foods, Inc. from Dublin, Ireland-based Ornua Co-Operative Limited. DPI is based in Ontario, CA and operates a large Mid-Atlantic distribution center in Upper Marlboro, MD. It currently employs approximately 1,800 employees and had annual revenues in excess o
f $1 billion. Ornua will retain a minority equity interest in the company and DPI’s existing senior management will continue to lead the organization. “The sale of DPI is consistent with Ornua’s strategy of reallocating capital and assets to support our continuing investments in enhanced routes to market for Irish dairy products through our businesses across global markets,” commented John Jordan, Ornua Foods CEO for Europe and Latin America. “As we evaluated potential acquirers, Arbor and its exclusive focus and stellar reputation in the food and beverage industry stood out. We believe that Arbor is the optimal equity partner to drive continued growth at DPI.” Founded in 1999 and headquartered in Chicago, Arbor Investments focuses exclusively on acquiring companies in the food, beverage and related industries. The firm has acquired or invested in more than 40 food, beverage and related companies in North America including Concord Foods, Fieldbrook Foods and Hudson Baking…we have a couple of obituaries to report this month. Passing away was one of my favorite character actors, Robert Loggia. Born Salvatore Loggia to Sicilian parents on Staten Island, Loggia, 85 made his film debut in 1956 in the movie “Somebody Up There Likes Me” (incidentally, that was Paul Newman’s first starring role). He had more than 230 film, theater and television roles and was nominated for an Academy Award as a supporting actor in “Jagged Edge” (1985). Other notable movies include “Big” (1988), “Scarface” (1983) and “Prizzi’s Honor” (1985). He also played jailed veteran mobster “Feech” La Manna in four episodes of “The Sopranos.” I’m also very sad to report the death of Mike Keba, a friend, mentor and – simply said – a wonderful person. Mike passed away late last month at the age of 87. When Mike joined Food Trade News as a sales rep in 1993, it was immediately clear that he was much more than just another salesman. His unbelievable knowledge of the business from his days at A&P and Wetterau was impressive by itself, but his wisdom, professionalism and kind manner were what made Mike stand apart from most others. Even as he got older and endured the pain of losing his beloved wife Rosemary in 2003, as well as other physical maladies, Mike Keba still seemed young at heart to me. He always talked about the future and importance of doing the right thing. May you rest in peace, my friend…as we close out our 37th year in business, I have much to be grateful for. I want to thank our many readers and advertisers for their continued support and friendship. May you all have a happy, healthy, merry and wealthy holiday season.